The heat wave and the situation in the Black Sea have pushed agricultural and food prices to a three-year high.

(Melbourne Bloomberg News) The heatwave sweeping across the region, coupled with the escalating conflict between Russia and Ukraine in the Black Sea, has pushed agricultural and food product prices to a three-year high. The risk of food inflation triggered by the US-Iraq war has resurfaced.

The Bloomberg Agriculture Spot Index, which tracks the spot prices of 10 crops including corn, soybeans, wheat, coffee and cotton, rose to its highest point since July 2023 on Wednesday (July 22nd).

When the Strait of Hormuz was closed earlier, blocking the supply chain of fuel and fertilizers and causing a crisis in crop harvests, this index reached a peak in May, then slowed down in June. Now, it has risen again due to a new wave of conflicts and climate risks.

The conflicts in the Middle East have pushed up oil prices, while the heatwave has affected the agricultural harvests in Europe. At the same time, Russia and Ukraine have been attacking each other's export routes, hindering trade and causing the price of wheat to rise.

If the prices of agricultural products remain high, it is likely to impact the entire food supply chain and drive up the prices of daily foods such as bread, cooking oil, meat and dairy products.

Although major grains have had a bumper harvest in recent years and there is still a large amount of stock, the return of the El Niño phenomenon is causing concern that crop production may decline.

Australian Commonwealth Bank agricultural economist Woznenskis said that although factors such as the heatwave and the tense situation in the Middle East had been brewing for several weeks, the "last straw that broke the camel's back" was the conflict in the Black Sea. "The real factor driving the market is whether buyers with demand can obtain the supply."

Over a quarter of global wheat exports come from the Black Sea region. The military actions by Russia and Ukraine in the Black Sea area have intensified, with frequent attacks on ports and merchant ships. This has led to instability in the wheat export routes. The Chicago wheat futures reached a new high in two years on Thursday.

A few days ago, a ship carrying barley was attacked in the port of Odesa, Ukraine; Russia has also banned ships from docking at the ports of the Azov Sea and Kavkaz without air defense systems.

Pistoya, a senior grains and oilseeds analyst at Rabobank, stated outright that the escalation of tensions in the Black Sea region could potentially cut off agricultural exports.

At the same time, the renewed confrontation between the United States and Iran has pushed crude oil prices to their highest level in several weeks, which in turn has increased the demand for biofuel raw materials such as corn and vegetable oil. On Thursday, Chicago soybean futures reached their highest point in two years, and Kuala Lumpur palm oil futures prices rose by 2.1% at one point.

The hot weather across Europe is causing growing concerns that crops such as corn will suffer a reduction in yield. Since the end of May, France, the largest agricultural producer in the EU, has been hit by three waves of heat waves, and the record-breaking heat has threatened the main grains in their critical growth stage. Pistoia pointed out that the combination of these factors has pushed up the prices of agricultural products across the board.

Apart from the European continent, the corn and soybean farming industries in the United States are also suffering from severe drought. On Wednesday, an options trader bet 2 million US dollars that the price of corn would rise sharply to over 6 dollars per bushel, which is more than 1 dollar higher than the current price.

The El Niño phenomenon has also caused the futures prices of coffee and cocoa to rise, as the important production areas for these soft commodities, such as West Africa, are likely to experience extremely hot weather this year.