Rising crop prices are making the current inflation problem bigger than just oil and the Iran war
Oil prices already are stirring inflation fears. Now higher prices on the farm are, too.
The next inflation scare isn't at the pump - it's on the farm.
Crop prices behind almost everything on your dinner table are all climbing at once, and Wall Street is taking notice. For investors, it looks like the return of the real-asset trade. But for U.S. consumers and the Federal Reserve, it's one more problem in an inflation picture already clouded by rising oil prices.
Oil prices (CL00) (CL.1) (BRN00) above $100 a barrel brought on by the Iran war are still front and center of the commodity rally so far this year. But the bull run has spread over to major U.S. agricultural products like soybeans (S00), corn (C00) and wheat (W00), as well as metals for industrial uses such as copper (HG00) and uranium.
The Bloomberg Commodity Index XX:BCOM, which tracks futures contracts across more than 20 physical commodities, last week traded at levels not seen in over a decade, according to FactSet data.
"Food inflation risks are re-emerging," said Mason Mendez, global real-assets analyst at Wells Fargo Investment Institute.
For consumers concerned about rising food and energy costs, agricultural markets are offering a reminder of how quickly higher commodity prices can reach their shopping carts - as reflected in the latest consumer-price index (CPI) report, for August. Food inflation increased 0.1% in the past month, with prices for meats, chicken, fish and eggs all rising, according to the Bureau of Labor Statistics, while prices for food away from home increased 0.3%.
Nearly every major agricultural commodity has posted double-digit gains so far in 2026 - with futures contracts for wheat up 43% this year to date, while soybeans have risen 24% and corn futures were up 20% in the same period, according to FactSet data.
To be sure, the reasons driving up each crop are different. Soybeans were climbing on a fresh, large U.S. sale to China that reduced supply. Corn was up on shrinking U.S. yield estimates, as heat and drought saw the USDA cut its harvest forecast for a second straight month. Wheat's rally is a geopolitical story, since renewed attacks by Russia and Ukraine on Black Sea shipping routes have squeezed Ukrainian wheat exports.
But energy is still the thread running through all of it, said Mendez. Elevated costs for diesel, fertilizer and other farm inputs have increased production expenses across the agricultural sector, creating headwinds for farmers and supporting higher crop prices, he noted.
Looking beyond individual commodities, three broader macro forces are also sharping the market, said Guy Wolf, global head of market analytics at Marex. First, there are debasement fears, which have recently resumed with concerns around government interventions in the Japanese yen (USDJPY) and U.S. Treasurys BX:TMUBMUSD10Y.
"We are also seeing resource nationalism and de-globalization. Copper is one of the most visible examples of this strategic stockpiling theme, but it applies to all critical minerals," Wolf told MarketWatch. He also pointed to the capital-expenditures "supercycle" being driven by "AI demand, renewable-energy investment and the expansion of power-grid infrastructure."
History isn't kind to U.S. stocks when commodities run hot. Since 2001, rising commodity prices haven't always put pressure on stocks - but, as shown in the chart below, periods of unusually high commodity prices have been associated with weaker subsequent S&P 500 SPX returns, according to data compiled by MarketWatch.
That's especially the case when prices of raw materials are elevated due to supply shocks and physical scarcity, which could squeeze corporate margins and hurt equity valuations.
In the view of Stash Graham, CIO at Graham Capital Wealth Management, the question now is how long it will take for the broader market to finally realize that the current inflation problem is bigger than just oil prices and the Iran war.
"Our baseline expectation is that we will see a further rise in break-even inflation expectations," Graham told MarketWatch. "We have yet to see a lot of change in inflation forecasts, so we are still in the early innings until people finally realize this is a bigger issue. Markets are still hesitant to think the Fed will hike [aggressively] in the next 12 months."
Fed-funds futures traders on Friday were pricing in at least two interest-rate hikes by the end of 2026, according to the CME FedWatch Tool - with a more than 85% chance of the first coming this week, when Fed policymakers gather on Sept. 15-16.
Another question for the Fed: At what point do officials stop viewing the recent price pressures as a supply-shock pass-through, and start treating it as sticky, demand-driven inflation? That matters because the Fed typically looks past temporary supply shocks - the resulting inflation impacts have been often called "transitory" - because monetary policy cannot fix a war in the Black Sea or a drought in Iowa, whereas demand shocks are exactly what aggressive rate hikes are designed to cool.
"That is precisely what the market is trying to figure out," said Marex's Wolf. "The apparent end of forward guidance from the Fed has added another layer of uncertainty, making it more difficult for investors to predict how the Fed might respond if commodity prices remain elevated."
From an investing standpoint, maintaining broad commodity exposure in a portfolio offers investors a way to hedge against further increases in food and energy prices, said Wells Fargo's Mendez. "We remain favorable on commodities and view pullbacks as opportunities to add exposure," he said.
U.S. stocks finished sharply higher on Friday, as declining oil prices and longer-term Treasury yields BX:TMUBMUSD30Y helped the major indexes snap a four-day losing streak - though the Dow Jones Industrial Average DJIA still logged its worst week since March. The S&P 500 was off 0.8% for the week, while the Nasdaq Composite COMP fell 0.7%, according to FactSet data.
-Isabel Wang