Market News

(Bloomberg) -- The extended closure of the Strait of Hormuz and extreme weather have jolted farm commodities prices to a two-year high, as fertilizer headaches and the prospect of smaller harvests drive food inflation risks.

The Bloomberg Agriculture Spot Index, which tracks 10 of the world’s top-selling crop products, has climbed for a third straight month to the highest since November 2023. That’s a pronounced shift from before the Middle East war, when most crop prices were weighed down by abundant inventory and bumper harvests.

Now, farmers from Asia to Australia to the US are grappling with converging challenges posed by the Iran war and drought, impacting prices of staple food products from bread to pasta and cooking oil.

The supply of grains like wheat and corn was adequate prior to the conflict after a series of strong harvests, while soybeans and vegetable oil prices were underpinned by biofuel demand, according to Kang Wei Cheang, an agricultural broker at StoneX in Singapore.

“The war has changed that balance materially, primarily through energy, fertilizer, and logistics channels,” he said. “Disruptions around the Strait of Hormuz have lifted crude oil prices and, just as importantly, pushed fertilizer and freight costs sharply higher.”

Wheat and corn, both fertilizer-intensive crops, are among the most affected. Benchmark wheat futures on the Chicago Board of Trade have surged about 12% since the war erupted in late February, and hit the highest level in almost two years this week. Corn has climbed 6% in the past two months to the highest in a year.

Some farmers in major producing countries have had to reduce planting to cut costs. Persistent dryness in the US Great Plains is driving up wheat prices, while severe weather outlooks are causing concern in other key regions including Australia and Russia. The spillover effect is impacting corn.

There’s a similar trend in Paris corn futures, which have surged to a 14-month high on expectations of tighter supplies as French farmers curb planting amid soaring fuel and fertilizer costs. Planting corn due to high energy costs is less competitive than other crops, said Yuriy Ruban, an analyst at the UK’s Agriculture and Horticulture Development Board.