KANSAS CITY, MISSOURI, US — After a seven-year mostly bearish grain market, the bull finally has been unleashed as several factors have simultaneously emerged to form a perfect storm of volatility.

Most important is China’s sharply increasing demand for grains and oilseeds. The burgeoning economic superpower, which comprises nearly 20% of the global population, recently drafted new grain reserve laws amid food security concerns that stem from the COVID-19 pandemic that originated in China and has infected more than 113 million people worldwide and killed nearly 2.5 million over the past 14 months.

China’s recent surge in corn and soybean imports was, to a certain degree, expected as it attempts to restock its swine herd — by far the world’s largest — which was reduced by roughly 50% over the past two years due to an outbreak of African swine fever. More surprising, however, is that China, traditionally self-sufficient in wheat as the world’s second largest producer, is also projected during the 2020-21 marketing year to import its highest total (9 million tonnes) of that traditional food grain in 25 years.

Also playing a role in the bull market are a strengthening Chinese yuan and a weakening US dollar — both of which appear to be long-term trends — and the adoption of grain export restrictions by Russia and several other major grain-producing countries that are trying to keep domestic food inflation in check.

With these elements already in place, all that is needed to send grain and food prices even higher is a widespread adverse weather event that shrinks supply unexpectedly. As it stands now, the International Grains Council’s most recent forecast sees a global record for total grains production in 2020-21 at 2.22 million tonnes, but dryness has reduced prospects in South America and some meteorologists are predicting a dry spring in North America, which could hamper output there as well. Stay tuned.

Wheat, corn and soybean prices reaching their highest level in seven years has pulled food prices up to their highest point in six years. This comes at a time when economies have been ravaged by high unemployment and, consequently, reduced incomes because of the pandemic.

High grain prices and greater volatility are a welcome development for grain producers and savvy agricultural commodity traders but are viewed much less favorably by end users of those raw materials and food consumers, who see the higher costs ultimately passed on to them at the grocery store.

How long this bull market lasts probably will mostly depend on China. Eventually, the country’s grain stockpiling goals will be met and import demand will return to the mean. And at some point, the COVID-19 crisis will abate, which will allow major grain-producing countries to focus less on stockpiling for food security reasons and more on capitalizing on export opportunities.

A more ominous view of the current uptick in agricultural commodities — along with similar rallies in energy and precious metals — is that it could be a precursor to global inflation, something that has been feared since many government’s began furiously printing money during the pandemic to stimulate their economies. While commodity prices are not 100% indicative of inflation, they can be a good starting point when attempting to hedge against it.