Global grain oil prices are surging to levels not seen in over two years, driven by a combination of geopolitical conflict and extreme weather. According to Bloomberg, the prolonged closure of the Strait of Hormuz and widespread drought have pushed the agricultural commodity price index to a two-and-a-half-year high. Furthermore, the Bloomberg Agriculture Spot Index, which tracks 10 key crops, has risen for the third consecutive month. It has now reached its highest level since November 2023. Consequently, the cost of staple foods from bread to pasta and butter is climbing for consumers worldwide.
From Surplus to Crisis: How Global Grain Oil Prices Reversed Course
This represents a significant shift from the pre-war period. Back then, prices were held down by high inventories and record harvests. However, that balance has now changed dramatically. Farmers from Asia to Australia and the US are facing dual pressures — the war with Iran and drought — which are pushing up prices for essential food commodities.
Before the conflict, wheat and corn supplies were ample, thanks to several large harvests. Meanwhile, soybean and vegetable oil prices had support from biofuel demand. However, Kang Wei Chiang, an agricultural broker at StoneX in Singapore, notes the following shift:
“The war has significantly altered this balance, primarily due to energy, fertilizers, and logistics. The disruption in the Strait of Hormuz has driven up oil prices and, just as importantly, sharply increased fertilizer and freight costs,” he adds.
Wheat, Corn, and Vegetable Oil Prices Surge on Multiple Fronts
Wheat and corn are experiencing the greatest challenges, as these crops are highly dependent on fertilizer. The most actively traded wheat futures in Chicago have risen 11% since the war began in late February and reached a nearly two-year high this week. Furthermore, corn has risen 6% over the past two months, reaching a one-year high.
Weather is becoming another key risk factor alongside the conflict. Some farmers in key producing countries are reducing plantings to cut costs. Specifically, a prolonged drought in the US plains is supporting wheat prices. Moreover, unfavorable weather forecasts are causing concern in other regions, including Australia and Russia. This uncertainty is also affecting the corn market.
Additionally, soybean oil prices in Chicago have risen nearly 50% since the beginning of the year, reaching their highest level since 2022. This surge is driven by stricter biofuel regulations in the US and rising energy markets. Palm oil prices have risen 12% as Indonesia, Malaysia, and Thailand increase their use of this feedstock for biodiesel.
Food Inflation Risk: Conflict’s Global and Delayed Impact
According to Oscar Tjakra, senior analyst at Rabobank in Singapore, the war is driving up food inflation primarily through energy, fertilizer, and logistics costs. He emphasizes that its impact is both global and delayed.
“If the conflict drags on, it could add several percentage points to food inflation over the next 6-18 months,” he noted.
Therefore, the current trajectory of global grain and oil prices presents a serious challenge for food security and agricultural businesses worldwide. Both producers and buyers must monitor these developments closely in the months ahead.
Source: Oleoscope (Russia)