FAO warns weather uncertainty to shape global food markets - EXCLUSIVE
Weather is likely to remain a key source of market uncertainty over the coming months, particularly for crops that are still in critical stages of development. Recent heatwaves have already affected yield prospects in parts of Europe, North America and the Black Sea region, contributing to firmer cereal and sugar prices in July. At the same time, favourable conditions elsewhere have helped offset some of these losses, highlighting that weather impacts are often highly localized.
This was said by Food and Agriculture Organization of the United Nations (FAO) Senior Economist Monika Tothova in an exclusive statement with CE Report.
Looking ahead, much will depend on weather developments during the remainder of the northern hemisphere growing season. Maize markets are especially sensitive at present, as crops in several major producing countries are entering pollination and grain-filling stages, when adverse weather can have a disproportionate impact on yields.
The recent emergence of El Niño adds another layer of uncertainty. While El Niño has historically been associated with shifts in temperature and rainfall patterns across a number of agricultural regions, its impacts vary considerably across crops and countries. At this stage, it is too early to assess its overall implications for global production or prices.
It is also important to distinguish between local production impacts and global commodity market impacts. Food commodities are traded internationally, and trade often helps offset weather-related production shortfalls in individual countries or regions. For example, lower maize production in the European Union resulting from recent heatwaves is likely to translate into higher import demand rather than an equivalent reduction in global availability. However, stronger import demand can contribute to firmer international prices and may create affordability challenges for more import-dependent countries. Overall, global supplies remain broadly adequate, but weather developments will continue to be closely monitored as an important factor shaping production prospects, trade flows and price developments in the months ahead.
The Black Sea region remains an important source of uncertainty for global wheat markets given its prominent role in international grain trade. Recent disruptions to export flows and damage to export infrastructure have contributed to higher wheat prices and increased market volatility, helping to explain part of the price strength observed in July.
That said, the impact should be viewed in the context of the global market. International grain trade has proven remarkably resilient in recent years, with exporters and importers adapting through alternative routes and sourcing strategies when disruptions occur. As a result, the effect on global availability is often smaller than the effect on market sentiment and transportation costs.
Looking ahead, the risk of further disruptions is likely to remain a factor influencing market expectations during the 2026/27 season. However, the extent to which this translates into sustained price increases will depend on a range of other factors, including harvest outcomes in major exporting countries, the evolution of weather conditions, the availability of alternative export channels, and overall levels of global supplies and stocks.
At present, global wheat supplies remain relatively comfortable despite a projected decline in production from last season's record levels. Consequently, while Black Sea developments are likely to continue supporting risk premia in the market, their impact on prices will ultimately depend on whether they coincide with broader supply shortfalls elsewhere – although the situation should be monitored.
The 3.4 percent increase in the FAO Cereal Price Index in July should not be interpreted as a uniform trend across all cereals. The index covers several commodities, including wheat, maize, rice, barley and sorghum, each of which is influenced by different supply, demand and trade dynamics. In July, the increase was driven primarily by wheat and maize, while rice prices remained broadly stable and barley prices declined.
Looking ahead, whether cereal prices continue rising or stabilize will depend on several factors. Weather remains particularly important, especially for maize, as crops in many major producing countries are still in critical pollination and grain-filling stages. Harvest outcomes for wheat in key exporting countries, the evolution of Black Sea export flows, energy market developments and freight costs will also influence market sentiment and price formation.
At the same time, there are also factors that could help limit further price increases. Global cereal supplies remain relatively ample by historical standards, and international trade has generally proven resilient in adapting to localized production shortfalls. Large harvests or improved production prospects in some regions can offset weaker outcomes elsewhere, reducing the impact on global availability.
For this reason, the outlook is likely to differ across cereals. Wheat prices will remain sensitive to developments in the Black Sea region and harvest results among major exporters. Maize markets will continue to focus on late-season weather. Rice prices may be influenced by evolving weather conditions in Asia, including any effects associated with El Niño. As a result, the direction of the overall cereal price index will depend on how these individual commodity markets evolve rather than on a single common driver.
The vegetable oil market is influenced by a range of factors, and biodiesel demand is certainly one of them. In July, stronger demand from Indonesia’s biodiesel sector supported palm oil prices, while robust feedstock demand in the United States helped underpin soy oil prices. Higher energy prices also increased the competitiveness of vegetable oils as biofuel feedstocks, providing additional support to the market.
Looking ahead, biodiesel policies and energy prices are likely to remain important drivers, but they are unlikely to be the only determinants of price developments. Vegetable oils are a diverse group of commodities, including palm, soy, sunflower and rapeseed oils, each with its own supply and demand dynamics. While palm and soy oil prices strengthened in July, sunflower and rapeseed oil prices came under pressure from expectations of larger supplies.
As a result, whether the overall vegetable oil index continues to rise will depend on the balance between demand-side support and supply developments. Strong biodiesel demand, higher energy prices or renewed disruptions affecting Black Sea exports could provide further upward pressure. Conversely, larger harvests, improving export availability and expanding supplies could help moderate prices.
The key point is that vegetable oil prices sit at the intersection of food, energy and industrial markets. Consequently, developments in biofuel policies and energy markets will remain important to watch, but their impact will continue to interact with crop production prospects, trade flows and stock levels across the different vegetable oils
FAO does not produce forecasts of future food commodity prices. Rather, it monitors market fundamentals such as production, consumption, trade and stocks and assesses the factors that could influence market developments. It is also important to distinguish between food commodity prices and consumer food prices. The FAO Food Price Index tracks international prices of globally traded food commodities, whereas consumer food prices are also shaped by domestic factors such as exchange rates, transport costs, taxes, processing, retail margins and national policies.
Based on current market fundamentals, the outlook for global food commodity markets remains relatively balanced. Although the FAO Food Price Index increased in July, global supplies of most major commodities remain broadly adequate, and cereal production is still expected to stay at historically high levels despite easing from recent records.
At the same time, a number of risks warrant close monitoring. Weather remains the most important source of uncertainty, including the potential impact of continued heatwaves, droughts and the emerging El Niño. Geopolitical developments affecting agricultural trade, particularly in the Black Sea region, could also influence market sentiment, logistics and transportation costs. In addition, developments in energy and fertilizer markets, including those linked to disruptions in key shipping routes, remain relevant as they affect production costs and trade flows across agricultural markets.
A significantly larger increase in international food commodity prices would most likely require several adverse factors to occur simultaneously, such as widespread weather-related production losses across major exporting regions, prolonged disruptions to trade and transport routes, or renewed increases in energy and fertilizer costs. While such risks cannot be ruled out, current market conditions do not point to a generalized global supply shortage.
More broadly, food security concerns often emerge not because food is unavailable globally, but because access becomes more difficult. Even when international supplies remain sufficient, higher import costs, weaker currencies or reduced purchasing power can create significant challenges for food-importing countries and vulnerable populations.
Photo: AI
This interview was prepared by Julian Müller
