Despite falling commodity prices, a new World Bank analysis warns that input costs, geopolitical tensions, trade disruptions, and extreme weather continue to destabilize global agricultural markets, while long-term risks like climate change and biofuel policies may reshape global food systems for years to come.

Agricultural commodity prices have continued to decline through the second quarter of 2025, reflecting a broad softening of global market conditions. According to a recent blog published by the World Bank on July 14, written by John Baffes, Senior Agriculture Economist, Dawit Mekonnen Senior Economist, and Kaltrina Temaj, Research Analyst, the institution’s Agricultural Price Index has fallen by nearly 7 percent since the start of the year. Prices for food commodities dropped 7 percent, raw materials by 1 percent, and beverage commodities plunged 13 percent.

Despite this downward trend, the World Bank economists caution that the outlook remains highly uncertain, with a complex set of short- and long-term risks threatening stability in global agricultural markets. These include macroeconomic volatility, geopolitical tensions, extreme weather events, and evolving biofuel policies.

 SLOWING GLOBAL GROWTH DAMPS COMMODITY DEMAND

Global economic growth is expected to decelerate in 2025, weighed down by rising trade barriers and lingering policy uncertainty. Growth in emerging markets and developing economies (EMDEs)—key players in agricultural trade—is projected to average 3.8 percent in 2025 and 2026, reflecting downward revisions from earlier forecasts. This slowdown is likely to weaken demand for commodities, particularly for products with higher income elasticity such as vegetable oils and raw materials.

The report also highlights the influence of macroeconomic factors like exchange rate movements and interest rates. A weaker U.S. dollar typically supports commodity prices, while higher interest rates raise borrowing and production costs, further influencing market dynamics.

INPUT COSTS AND ENERGY PRICES REMAIN KEY VOLATILITY TRIGGERS

Energy and fertilizer costs continue to be major sources of uncertainty for global agriculture. While energy prices are projected to decline by 17 percent in 2025, fertilizer prices are expected to rise by over 7 percent before stabilizing the following year. The authors warn that geopolitical instability—particularly in the Middle East—could reverse energy market trends. A surge in crude oil or natural gas prices could sharply increase costs for energy-intensive feedstocks like maize, palm oil, and sugar, and escalate fertilizer expenses, thereby impacting global food prices.

GEOPOLITICAL RISKS AND TRADE DISRUPTIONS ADD PRESSURE

The blog underlines that geopolitical tensions have reached their highest levels since 2022, coinciding with record-high uncertainty around trade policy. Ongoing conflict in the Middle East and potential disruptions in the Strait of Hormuz—critical for global fertilizer and natural gas flows—pose significant threats to market stability. Meanwhile, Russia’s war in Ukraine continues to affect agricultural exports from the Black Sea region.

Rising protectionism and new tariffs on agricultural products are also reshaping trade patterns, potentially amplifying market volatility.

HEATWAVES THREATEN CROP YIELDS

Extreme weather events, especially prolonged heatwaves, are becoming more frequent and intense, with direct implications for short-term agricultural production. In the United States, for instance, the number of annual heatwaves has tripled since the 1960s. These events now last longer and cover a wider portion of the crop cycle. If such events strike during critical growth stages in major exporting countries, global food prices could see sharp spikes, the economists warn.

LONG-TERM CLIMATE SHIFTS

Beyond short-term weather shocks, long-term changes in climate patterns are reshaping agricultural supply chains. Tree crops such as cocoa, Arabica coffee, and Robusta coffee have seen record price increases in 2025, reflecting both climatic pressures and the inflexibility of tree crop production systems. These crops, which require years to mature and cannot be easily substituted, are particularly vulnerable to climate variability—signaling potential instability for wider agricultural markets.

BIOFUEL POLICIES ADD TO LONG-TERM UNCERTAINTY

Biofuel mandates remain another wildcard. Crops such as maize, oilseeds, and sugar are increasingly diverted toward biofuel production, pushing prices higher over the long term. However, recent shifts—such as the suspension of blending mandate increases in Brazil and Indonesia due to rising feedstock prices—have introduced fresh uncertainty. Meanwhile, U.S. policy direction on biofuels remains unclear, further clouding the outlook for agricultural demand.

RESILIENCE NEEDED IN AN UNCERTAIN LANDSCAPE

While the near-term trend in commodity prices appears downward, the path ahead is far from certain. The sector is grappling with overlapping risks—from geopolitical flashpoints and volatile input costs to climate shocks and shifting energy policies.

The authors stress the need for coordinated policy action and strategic investments to safeguard food security and market stability. “In this complex environment,” they write, “it is essential for policymakers, industry stakeholders, and global institutions to prioritize strategies that build resilience, support market stability, and promote long-term sustainability in the agricultural sector.”