Commodity strategists are warning that markets may be underestimating the effects of climate volatility, particularly with a strong El Niño anticipated between July and September. This climate pattern is linked to extreme weather, which is already evident as Europe faces a severe heatwave.
For instance, parts of the U.K. have recorded nearly two weeks of temperatures exceeding 30 degrees Celsius, while France has experienced multiple heatwaves this year. The U.S. Department of Agriculture reported a 3.1% year-on-year increase in food prices as of May, and agricultural commodities have risen 7% this month alone.
Analysts from Societe Generale and Man Group predict that crop yields could decline significantly due to the warmer conditions, with staples like rice potentially seeing reductions of 2%-8%. Bank of America highlighted that Europe is warming faster than other regions, making crops like coffee, cocoa, corn, and wheat particularly vulnerable to heat stress.
They forecast corn prices could rise from approximately $4.70 to between $5.50 and $6.00 per bushel due to these weather risks. Additionally, extreme weather is impacting metals production, with copper and aluminum facing supply challenges due to water and power constraints.
Overall, the implications of these climate events could lead to structural changes in commodity pricing and availability, posing risks and opportunities for investors