Global Heat Wave will Hit Your Wallet Soon

July 29, 2018



Commodity producers are having a summer to remember, for all the wrong reasons.

A heatwave across swathes of North America, Europe and Asia, coupled with a worsening drought in some areas, is causing spikes in the prices of anything from wheat to electricity. Cotton plants are stunted in parched Texas fields, French rivers are too warm to effectively cool nuclear reactors and the Russian wheat crop is faltering.

The scorching heat is extracting a heavy human cost – contributing to floods in Japan and Laos and wildfires near Athens. Relief from soaring temperatures, which topped 30 degrees Celsius (86 degrees Fahrenheit) in the Arctic Circle,  may not arrive for at least two weeks.

It’s a timely reminder of the vulnerability of global commodity markets to the changing climate, as human activity disrupts the behavior of plants, animals and the march of the seasons.

The heat and lack of rainfall is pummeling crops across Europe as far as the Black Sea. Output in Russia, the world’s top wheat exporter, is set to fall for the first time in six years, while concerns continue to mount about smaller crops in key growers such as France and Germany. Wheat futures for December have jumped almost 10 percent in the past month in Paris, with prices this week reaching the highest since the contract started trading in 2015.

After years of bumper harvests, global output could drop this year for the first time since the 2012 to 2013 growing season. This could have political and social ramifications. Egypt, which relies on subsidized bread to feed its almost 100 million people, is already paying the highest price for its imports in more than three years.

French farmers aren’t the only ones finding the weather too hot to handle. The country’s fleet of nuclear power plants is also suffering.

Rivers have become too warm to effectively cool the reactors, and Electricite de France SA may be forced to cut output later this week at two stations. The hot weather also has forced a German coal-fired plant to curb operations and reduced the availability of some plants in Britain fired by natural gas.

France gets more than 70 percent of its power from 58 atomic stations and is a net exporter of electricity to neighboring countries. Any reductions in output would potentially boost prices across the continent.

The sultry conditions are also leaving wind turbines virtually at a standstill. In Germany, wind output over the past 10 days has been a third lower than the average for the year so far. Windmills are also becalmed in Spain, Italy, the U.K., Denmark and Sweden. Solar operators are enjoying the weather, but they can’t fill the gap left by wind and demand for natural gas is rising.

French and German day-ahead wholesale power is at the highest for the time of year for a decade, while in Britain they’re the most since at least 2009.


Over in Texas, power prices are also jumping due to the heat.  The northern part of the state smashed a 93-year-old daily temperature record last week, sending demand surging as people heeded advice to stay indoors and crank up their air conditioning. Wholesale prices for electricity secured a day in advance reached three-year highs, although they’ve since fallen as temperatures moderated.

Temperatures got so high that the National Weather Service was advising north Texas residents to avoid walking their dogs, lest they burn Fido’s paws. But for farmers in the west of the state, the drought was hurting even more than the heat.


The West Texas cotton belt – the world’s most productive area for the crop – is brown, baked, cracked and dusty. The dryness is so bad that close to half of the state’s crop is in poor or very poor condition, U.S. government data show. About 4.5 million acres of the fiber are planted in the region, 60 percent of which depends on rain because it isn’t irrigated.

“I lost everything in the dry land,” said Lloyd Arthur, a fourth-generation farmer in Crosby County. He’s not expecting to harvest anything from about a quarter of the 2,000 acres of cotton he sowed this season.

As the blazing sun beats down, combine harvesters working the normally fertile breadbasket of Saxony-Anhalt in former communist East Germany kick up giant clouds of dust as they roll over the cracked earth.

“It hasn’t really rained since April and that’s the main growth period for our grains and the other crops—we’ve never seen anything like it,” said Juliane Stein of Agro Boerdegruen, a farming conglomerate formed after German reunification in 1990.

“We’ve reached the point here in Germany where we’re talking about a natural disaster that’s a threat to our livelihood.”

A natural disaster is declared by German authorities during a drought when at least 30 percent of the average annual harvest is destroyed.

Given the massive losses feared by the sector this year, the German Farmers’ Association (DBV) has called crisis talks on Tuesday to discuss urgent state aid.

While southern Germany has seen largely normal rainfall this year, the north has been in the grip of an unrelenting high-pressure system creating weather conditions more familiar in southern France or Italy.

“We expect billions in losses,” DBV president Joachim Rukwied told German media last week.

Investor’s Business Daily:

A drought that’s hit wheat crops across the Black Sea region and Europe will force top buyer Egypt to pay more for supplies.

The cheapest offer in Tuesday’s tender was more than $14 a metric ton higher than what Egypt’s state-run buyer paid in its last purchase, according to traders familiar with the process and data compiled by Bloomberg. The General Authority for Supply Commodities is seeking wheat for Sept. 1-10 delivery.

Benchmark futures trading in Chicago have surged almost 20% this year, and Paris wheat for December is trading near a record for the contract. Dry weather means Russian production will fall for the first time in six years. Output in Ukraine will be lower than expected. Crops in France, Germany and the Baltic countries are also expected to decline from a year earlier.

“Egypt will have to pay more,” said Pierre Tronc, a broker at BGC Partners, speaking before offers were made. “It is just a question of price. I don’t see supply being a problem.”




7 Responses to “Global Heat Wave will Hit Your Wallet Soon”

  1. indy222 Says:

    Prof David Battisti (U. Wash) gave an excellent talk at the University of Az, on YouTube, on pretty frightening prospects for food insecurity in the 21st Century. While listening to all the forboding facts, I found myself continually thinking “yeah… but – we’ll just breed better heat-tolerant staple crops. We probably are already on it.”, and thinking he’d mention that finally. Then, in the final minute of the talk he said that breeders have been trying for 30 years to breed heat tolerance into the staple crops (which are already above their optimum temperature when grown in the tropics) – and they have had NO success, Battisti thinks that will continue. Temperature is a difficult thing – it controls so much of biochemistry’s pace

  2. Excellent summation as always, Peter. Much appreciated… thank you!

  3. rhymeswithgoalie Says:

    Drought hurting crops is one thing, then you get something like the Substation Fire burning otherwise healthy wheat fields in Oregon.

  4. Scientist have warned for decades. Cut CO2-emissins or you gonna pay. Not much really happened. The first UN Climate Conference seems to have been in 1995. The CO2-emissions were then 23 milion kilitons. In 2014, the last year for which I have data it was 36 milion kiloton. That is an increase of 56 %. It is not going to work this way.

  5. leslie graham Says:

    The traditional methods of breeding more drought tolerant crops has been more successful than GM methods which, as you say, have failed utterly.

  6. dumboldguy Says:

    Ax-grinding, Leslie? Exactly WHO here has said ” traditional methods of breeding more drought tolerant crops has been more successful than GM methods which have failed utterly”? Peter didn’t, nor did Battisti in his excellent talk, nor did indy222.

    Reread the last few sentences of indy’s comment, particularly “Temperature is a difficult thing – it controls so much of biochemistry’s pace”. We can’t change the rules of physics and chemistry. Just as ice melts when it’s warmed above 32 F, certain biochemical processes degrade as temperatures rise, i.e., crop plants are less successful.

    Also be aware that “traditional breeders” try to select for traits that give the desired results while those using “GM methods” try to find and insert genes for desired traits. Crops and plants that have evolved in cooler conditions offer little to work with for either group.

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