Turning up the heat on food prices

• With widespread weird weather, wheat production is down and prices have ticked up.

• Barley yield is down much more, with a potentially bigger impact for Scottish farming and whisky.

• China's trade war tariffs on US soya is hitting American farmers hard, raising Chinese food prices, and skewing choices in South America and beyond.

A weird year for weather, so we've got a glut of some fruit and not enough grass for grazing. Livestock farmers are having to bring forward their use of feed, and it's only July.

Maybe the blast of thunder that ended the week will break Britain's exceptionally hot weather of 2018. But a few downpours won't end concern about farm production.

So while much of this week's discussion of stockpiling food has been about concerns that Brexit may suddenly block the EU-UK flow of produce, it may be that stockpiling would be better aimed at climate-change and weather-related disruptions ahead for world markets.

Rice bowl

Britain's a small player in the global scheme of things granular. In most years, it can be self-sufficient in barley and oats, and in the last few years, it has had to import wheat.

So relying on world markets for grain - for flour, bread, rice, numerous food products, animal feed for most of our meat, and for ethanol - we are all susceptible to sharp changes in global weather patterns, even those of us who have so far escaped the worst of the heat wave.

More than two billion tonnes of grain are produced every year. This year, the International Grains Council (IGC) is estimating, with a July update, that production will be down around 2%. That's well within manageable levels. Rice is cooking nicely.

But as billions of people become more prosperous, diets improve and expand, and populations grow, demand is rising at around 1 to 2%. Demand for some grains, including oil seeds, which are particularly important to animal feed, is growing faster.

Futures trading

What is causing particular concern this year is the wheat harvest, and for the European/British shopping basket, that is a concern.

With exceptional weather in Britain, much of Europe, and across the northern hemisphere, the IGC this week forecast the global wheat harvest will be down around 5%.

Futures in wheat have been trading at a five year high. The price index for wheat has ticked up 8% up month-on-month.

So this is not just about British weather, but Germany, Denmark, Scandanavia, into Russia (the biggest exporter, where Siberia has been scorched in recent weeks) and Ukraine.

Futures in wheat have been trading at a five-year high

Back in 2007, a squeeze on global grain markets caused a very high spike in food prices worldwide.

That had to do partly with a shift in US policy towards mixing more ethanol with its gasoline, drawing in much of the maize crop.

According to Helen Plant, a market insight analyst at the Agriculture and Horticulture Development Board, based in Warwickshire, that followed two "very challenging" harvests, leading to a sharp drop in stock levels.

Well, we're back there again. As a ratio of demand for wheat, and excluding China's large inventories, wheat stocks have dropped sharply.

"In the last eight months, people have started to get worried about stock levels again," she said. "That's after a difficult South American harvest, and now, there's the difficult harvest in Europe."

"Prices have risen. In terms of where things go next, it comes to confirmation of harvest. It's always quite difficult at this stage in July when numbers are based on forecasts and estimates. The next few weeks will be crucial to find out how well yields develop."

Helen Plant watches benchmark prices in Chicago, Paris and the UK. The British one is the highest since 2012 at this point of the year, though Paris is at a two year high and Chicago is at the highest point in only six months.

Alcohol yield

Barley is a less important grain to the world economy, though it is important in Scotland, for the farmers who grow it, for whisky and animal feed.

It is in a much more concerning position than wheat. Grown in fewer regions of the world, much of it in Northern Europe, Canada and Ukraine, it is more vulnerable to those regions having odd weather.

Sowing was later due to harsh weather in spring. And the most sensitive time for growing, in June and early July, was when the weather got very hot and dry.

I'm told that is not good news for whisky production. The best alcohol yield comes from barley that is low on nitrogen. But in dry weather, the nitrogen tends to be higher.

The IGC market update points to an 11% increase in the barley price index, and a 30% rise on last year.

The most uncertain element of the world grains market is emerging from the Oval Office. The trade wars being ramped up by President Trump are already having a distorting effect on the grains business.

China has responded to his tariffs on Chinese imports by imposing high tariffs on soya beans, among other American exports to China.

US soya prices are down by 10%

China imports two-thirds of the world's soya beans. Of its imports, the US accounts for 40%. To look at it from the US farmers' point of view, quarter of their soya production has been going to China.

That has depressed US soya prices by around 10%, while other countries have the opportunity to fill the gap left by US exporters, so prices have diverged. Argentina and Brazil can hope to cash in, for delivery to China next winter.

The White House has already had to respond to the consequences of the trade war with a $12bn support package for US farmers. And when President Trump met European Commission president Jean-Claude Juncker last week, the sale of soya to Europe was high on The Donald's agenda.

Meanwhile, we can expect to see Chinese food prices on the rise, including pork and poultry that feed on soya, as the country has to shift to other suppliers or perhaps use other grains.

The further distorting effect is that South American and Ukrainian farmers could shift a lot of their planting to soya to meet Chinese demand. But as they do so, that affects the supply of other grains.

And if the trade war shifts to peace as rapidly as the US-EU relations did last week, farmers could be left with a glut of soya and a shortage of other grains.

Planting decisions they're making in the Argentinian grain belt or in Aberdeenshire may seem small, but when lots of similar decisions are put together, that's what drives global markets.