Extreme heat threatens global food systems, UN agencies warn

The market is still underpricing the second-order inflation channel: persistent heat does not just reduce supply, it raises the volatility of supply, which forces processors, retailers, and end-users to carry more inventory and pay up for optionality. That shifts bargaining power toward firms with storage, logistics, and pricing power, while crushing pure upstream producers whose output becomes more seasonal and less predictable. In food chains, the winners are likely to be names exposed to agricultural inputs, irrigation, controlled-environment growing, cold chain, and commodity merchandising rather than broad crop exposure.

The more interesting trade is not a simple short on agriculture, but a dispersion trade across the value chain. Input providers can see demand rise even if farm incomes are squeezed, because growers respond to uncertainty by spending on drought-tolerant seed, crop protection, sensors, and water management. Conversely, livestock and aquaculture margins are vulnerable to feed-cost inflation and heat-related mortality, which tends to show up with a lag of one to three quarters after weather shocks, making earnings revisions more durable than the initial headline reaction.

The macro risk is that heat-driven food inflation becomes sticky enough to keep policy rates higher for longer in emerging markets, where food weight in CPI is materially larger. That creates a feedback loop: weaker real incomes reduce demand for discretionary protein, restaurants, and packaged premium foods, while governments respond with export restrictions or subsidies that further distort trade flows. If multiple growing regions suffer simultaneously, the best hedge is not simply agriculture beta, but long volatility in food and weather-sensitive commodities.