May 11, 2021 - Economy

Soaring crop prices set off inflation fears

Crop prices
S&P Global Market Intelligence; Chart: Danielle Alberti/Axios

Crop prices like corn, wheat and soybeans have hit highs not seen in almost a decade. And they’re likely to stay that way for a while, sparking jitters over food inflation.

Why it matters: Higher prices are a boon for farmers following years in the doldrums — and after supply chain chaos early in the pandemic. But they will bleed through to consumers at the grocery store and in restaurants.

  • “We believe we are only in the early innings of a multi-year upcycle for the global agricultural economy. This is due to a combination of supply shocks that has left crop inventories quite lean,” analysts at Putnam Investments wrote in a recent research note.

The backstory: China has soaked up a huge amount of U.S. corn and soybeans since the end of the trade war. It purchased more corn from the U.S. in 2020 than in any year since 2006 — and it's on pace to exceed that amount in 2021, the Putnam analysts write.

  • China also bought more soy from the U.S. than it has since 2016.
  • Bad crop weather in key agricultural areas in recent years has contracted supply, Bloomberg reports.
  • Demand for renewable fuels is growing as the economy reopens, the WSJ notes. Corn is used in ethanol, and soybeans are a feedstock for renewable diesel.

What they're saying: “We are getting close to the point of having to ration demand. Farmers are either running out of crops to sell or waiting for the market to go even higher,” Jacqueline Holland, an analyst at Farm Futures, told Bloomberg.

What's next: The soaring prices will pressure margins for packaged food companies and grocery stores.

  • Already, Hormel, J.M. Smucker and Tyson Foods have raised prices, and others are likely to do the same.
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