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It is becoming increasingly difficult to put an idea or opinion down on paper. The speed of events makes any attempt to predict the future futile.
Globally, tensions have run high this summer. Not only because of the extremely high temperatures we’ve endured in Europe and other parts of the world—a prelude to an intense El Niño, which is increasingly likely to impact future harvests—but also because fuel has been added to the various conflict hotspots around the globe.
Just this past weekend, for example, the Houthis have been advancing their positions along the Bab al-Mandeb coast in an attempt to control maritime traffic through the strait (as a side note, Bab al-Mandeb means “Gate of Lamentations” or “Gate of Tears”). At the same time, another not yet confirmed group has bombed, from positions in Iraq, the oil pipeline through which Saudi Arabia transports no less than 5% of the world’s oil.
In short: two of the world’s most important straits for global trade—and for oil, gas, and petroleum products—are blocked, and, in the case of the Strait of Hormuz, have been operating at half capacity for months.
The effects did not take long to materialize. Stock markets are falling, Brent crude is at 107, the specter of persistent inflation is looming once again, and banks are raising interest rates and signaling that they will continue to do so through the end of 2026. The cornerstone of the global economy—the yield on the 10-year U.S. Treasury note—is now hovering around 5%. Wars are inflationary, and when they break out in regions strategic for oil, the impact is quickly reflected in prices.
Cereals, on the other hand, saw prices rise in August. Corn harvest losses in Europe have been significant due to the heat. In the United States, corn yield estimates have been revised downward from initial forecasts: last Friday’s WASDE report published a corn yield of 178.5, down from the 180 reported the previous month, though more optimistic than the 173 projected by the Pro Farmer Crop Tour in August. As far as the grain is concerned, we can say that the market has already priced in the poor yields through the price increases of the past month. On the other hand, this summer, the agreement between Ukraine and Russia to manage a grain corridor has literally gone up in smoke, as attacks on grain ships and port facilities have continued on both sides of the conflict. In short, the Black Sea supply chain has become more complicated, which is also reflected in rising prices.
It’s worth pausing here to focus on the key point: right now, we don’t have a global supply problem; supply—even though it’s been reduced in Europe due to the heat—remains sufficient. What matters, in this case, is where that supply is located and whether it’s feasible to channel it to the ports where consumption takes place. That’s where geopolitics and freight rates come fully into play.
At the local level, meanwhile, we have seen a significant drop in demand in Spain, especially in the hinterland of the Port of Tarragona (its main area of influence). It is also true that this is the first time in quite a few marketing years that consumer purchases starting in January have been scarce. With the market on the rise and so much uncertainty, covering those positions is going to be complicated. We haven’t had many opportunities to buy corn or wheat for positions starting in January and beyond at prices that would seem attractive to consumers, and that’s why now, with prices rising, it’s going to be difficult to fill those positions.
Once again, of course, we have another elephant in the room: the EUDR. That makes three now. Once again, consumers cannot purchase soy for positions starting in January 2027 due to the European Union’s enforcement of the deforestation-free regulation. For the past two years, at the last minute, the deadline for implementing the regulation has been extended by another year (last year, it was in December that Brussels decided to extend the deadline by another year). This creates completely unnecessary uncertainty for buyers in an environment that already offers no certainty to begin with.
To venture a prediction, it is true that grain prices have already factored in the cuts in corn production and the increased tensions in the Black Sea. However, if oil prices continue to rise and hostilities in the Black Sea continue to escalate, freight rates will also rise, pushing up grain prices at destination. The lack of purchases by consumers from January onward will also support prices. On the other side of the balance is consumption: the limit to any price increase is demand destruction. If pig prices remain low and continue to fail to cover costs, demand next year will be lower.
