Global heat waves weigh on grain production, Nord Stream 2 capacity to fall to 20%

Yahoo Finance anchors discuss how extreme weather fueled by climate change could put pressure on grain commodities as well as the latest news about energy deliveries from the Nord Stream 2 pipeline in Europe.

Video transcript

JULIE HYMAN: All right, and one more thing that we want to talk about today, and that's the US sweltering under record breaking temperatures this weekend. 85 million Americans faced extreme weather warnings. Missouri, Oklahoma among the states that will continue to see 100 plus Fahrenheit days this week. New York is forecast to have a slightly cooler-- we're supposed to get a cold front today.

But we talked about it happening in Europe as well, now here in the United States. And, you know, skeptics, I guess, will say, oh, gee, it's summer. It's hot. But we have seen a higher frequency of these high temperature days as we got into the 2000s and now, of course, here in 2022 because we are seeing climate change. So the question is what ripple effects is it going to continue to have in the world of business and policy, et cetera.

BRIAN SOZZI: Well, one of the most obvious is what you might see with corn, wheat, all those commodities prices. There are starting to be some real concerns about how harvest might play out, not just here in the US, but in Europe as well. And you could very easily see some prices shooting higher for wheat, corn, you name it.

BRAD SMITH: Right, and you talk about the pricing environment that is already high that consumers are navigating through, especially when it comes to the produce aisle and the supermarket. And there are already people who are going out for those eggs, like Sozzi--

BRIAN SOZZI: The Fed can't-- they can't fight the heat. The Fed can't fight the heat. Rate hikes are not going to save corn prices that are dealing with potentially weak harvests because of 100 degree plus temperatures. I'm sorry, Jay Powell. You just can't.

JULIE HYMAN: Right, so a couple of different things happen. You get a shift of the zones, of agricultural zones, right, for various crops. You also get companies like Bayer and ADM that are now, with all of their various engineered seeds, are they going to build in more heat resistance to some of these products as time goes on? So these are all things that we have to watch.

When we're talking about grains and when we're talking about prices, we also have to talk about the latest in Ukraine. Remember last week, when we were talking about an agreement between Ukraine, Russia, and the UN to potentially get grain exports out more readily, well, then, over the weekend, you had Russia bombing Odessa, which is the main port on the Black Sea, throwing into question that agreement, so meaning, potentially, continued pressure on some of these prices.

BRAD SMITH: Yeah, and the continued pressure on the prices, especially as we're kind of navigating the broader capacity and output that is trying to be negotiated to a certain extent, but right now, even as we were discussing earlier with our guest, just about where those deals are being made and who's actually putting the output out there and who is buying energy from Russia, still, to this point in time, China, largely, and then Russia still waiting on their-- that part of the pipeline to be able to turn back on capacity for other parts of Europe. And Europe is going to even continue to get hit over this near-term interim period.

BRIAN SOZZI: Maybe the heat wave was this summer's black swan event. I can't believe that weather like this has been factored into stock prices.

JULIE HYMAN: Well, but why would it be? I mean, even now, what if--

BRIAN SOZZI: Not yet. I mean, we're waiting to deal with high levels inflation. If harvests don't get harvested like they were supposed to, maybe that's another level in food prices that the market is not interested in.

JULIE HYMAN: Yeah, I haven't seen dramatic changes, though, to the crop forecasts and things like that.

[INTERPOSING VOICES]

JULIE HYMAN: So that's something that we have to dig into. One more thing when we're talking about Ukraine and Russia and that whole dynamic there is we did have a bit of breaking news, which is that Nord Stream 2 pipeline that we talking about earlier that carries natural gas from Russia to Europe, and which just came back up to 40% capacity after it was repaired, now, Gazprom, the operator, says it's going to go down to 20% of capacity as of July 27.

So that was something that had been speculated upon, but we're seeing natural gas prices up again today. This is largely a regional phenomenon, but still, you do get somewhat of a reprieve there.

BRIAN SOZZI: I think it fits nicely with what the Goldman Samantha Dart told us, that it's still a bullish setup for many commodities, and notably, for natural gas.

Absolutely