Grain expectations

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Articles by Jasmine

Jasmine Yeo

Fund Manager

11 June 2026

Markets have been quick to price geopolitical risk where it is most visible. The reaction in energy has been immediate and forceful. In food markets, however, the same shock is being treated as temporary – creating an opportunity for investors to add a different flavour of geopolitical hedge to portfolios.

This month’s chart compares the recent performance of oil with a range of key agricultural commodities, each rebased to the end of last year. The divergence is clear: Brent crude is trading around 30% higher than on the eve of the conflict with Iran, whilst crop prices have lagged.

Yet the closure of the Strait of Hormuz has removed a meaningful share of globally traded fertiliser feedstocks, including urea (35%), ammonia (27%), phosphate (22%) and sulphur (45%).¹ This matters because these feedstocks sit upstream of the entire crop system – quietly determining acreage decisions, yields and ultimately food prices.

Urea and ammonia are the primary traded forms of nitrogen fertiliser, a critical input for corn and wheat that directly influences yield potential and planting decisions. Higher fertiliser costs squeeze farmers’ margins, encouraging them to use less fertiliser or reduce the planted area, which can in turn feed through into higher grain prices. Sugar and soybeans are less exposed to this dynamic. But they are used in biofuel production – sugar for ethanol and soybeans for biodiesel – meaning they can benefit indirectly as higher oil prices incentivise substitution.

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So why has there been such a muted price reaction?

Agriculture runs on a calendar, not a news cycle. Northern Hemisphere spring planting largely used inventory purchased before tensions escalated. However, the next purchasing window occurs in the Southern Hemisphere and begins over the summer. This is when farmers will return to the market for nitrogen inputs. If the Strait remains closed into that period, today’s logistical constraint becomes tomorrow’s economic pain.

This is why the market appears complacent. It is not ignoring the problem – it is assuming the problem goes away. A resolution between the US and Iran is the consensus view and, until that assumption is challenged, the market does not have to deal with the consequences. If the disruption fades quickly, the market’s current indifference will be justified. But, if it persists a little longer, the transmission into crop economics becomes hard to ignore – making agricultural commodities a potentially asymmetric hedge.

In addition, agricultural commodities typically perform well in periods of high and rising inflation, delivering positive real returns in most historical inflationary episodes. In portfolio terms, Ruffer’s 2% exposure to these commodities complements existing inflation and geopolitical hedges, whilst adding diversification through assets driven by different forces – from logistics to weather.

There is one important wild card. China has been restricting urea exports since the end of last year, building up inventory in the process. A decision to re-enter the market at scale could ease supply concerns before the summer planting period. Equally, a resolution to the conflict and a full reopening of the Strait would allow delayed (rather than lost) supply to return quickly as shipping normalises. Finally, agricultural markets remain inherently sensitive to weather and seasonal dynamics, which can amplify or offset the fertiliser shock. The likely return of El Niño into 2026 only reinforces that, with past events associated with meaningful disruption to agricultural output.

At Ruffer, we do not aim to predict how the conflict will evolve from here. We look to own assets that protect the portfolio against unfavourable outcomes. Agricultural exposure offers an unusually asymmetric way of doing that: a hedge that could respond if tensions persist or re escalate, but which starts from a far less demanding base than oil.

Articles by Jasmine

Jasmine Yeo

Fund Manager

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Piers Wheeler

Director – Institutional

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Developing and executing asset management strategy for capital raising and strategic relationship management. Coverage includes EMEA, Asia and Australia. Piers joined Ruffer in 2021, having previously worked with asset management firms including Eastspring, AMP Capital and LEK as a strategic consultant. He holds a MA from the Bayes Business School and a BA (Hons) from the University of Oxford.

Annabel Paterson

Senior Associate – Institutional

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Joined Ruffer in 2021, having graduated with a first class honours degree in land economics from the University of Cambridge. After two years working with the UK Private Wealth team and completing her IMC and CFA Level I qualifications, she now supports Ruffer’s global business development and client servicing efforts.

Articles by Annabel

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