Chicago corn soared the most in nearly a year after the sweltering summer heat may dent crop yields.
Bloomberg reports a heatwave over the Midwest grain belt is underway during corn's pollination period, a flowering stage for the grain, and is the most crucial development period for yield determination. High temperatures and a lack of rainfall during the pollination phase usually result in lower yields.
Russia's attacks across Ukraine's agriculture sector and Western sanctions against Russian exports have tightened food supplies globally and shifted the spotlight on North America's growing season.
"The market's tightness going into season 2022 is beginning to reassert itself, as is the patchy weather outlook across several significant segments across Europe," Tobin Gorey, commodities strategist at Commonwealth Bank of Australia, wrote in a note to clients. "Crop yields are at risk of a downgrade in many of these locations."
As a result of the pessimistic outlook, corn futures in Chicago jumped as high as 5.6% on Monday. It was the most significant intraday gain since August.
JPMorgan commodity specialist Tracey Allen told clients the latest decline in grain prices to pre-Ukraine invasion levels "is masking the broader outlook of historically tight exportable grain and oilseed inventories."
Allen pointed out, "markets are trading as if Ukrainian production and export flows will be back to business as usual through 2022/23 – that is simply not the case ... adding there are still "immense dislocations across global trade flows, which may not be felt until the typical peak period of Ukrainian exports in late 3Q and through 4Q."
Meanwhile, China could make grain markets even tighter if the Biden administration rolls back some of former President Trump's tariffs.
"There is some speculation that if President Biden drops some of the existing import tariffs on China to lower inflation, it could push China to be a buyer of additional US ag products," Tomm Pfitzenmaier of Summit Commodity Brokerage, told clients.
Unlike prior periods of high food inflation, the war in Ukraine and Western sanctions plus weather woes around the world crunching inventories could result in years of high food prices. Look at the social unrest in Sri Lanka to understand the consequences of high food inflation and shortages.