Hedge funds are increasing exposure to agricultural commodities used in biofuel production as the Iran conflict drives volatility in energy markets and raises concerns over prolonged disruption to global fuel supply chains, according to a report by the Financial Times.
Traders have sharply increased bullish positions in soyabean oil and corn, betting that higher oil prices will accelerate demand for alternative fuels such as biodiesel and ethanol.
Data from the US Commodity Futures Trading Commission shows that speculative funds have nearly tripled net long positions in soyabean oil since the conflict began, while positioning in corn has shifted from bearish to its strongest bullish stance this year.
The move reflects a broader market view that agricultural commodities are increasingly being driven by energy dynamics rather than purely food supply fundamentals.
Oil prices have surged from around USD72 per barrel to above $100 since the escalation of hostilities in the Middle East, intensifying expectations that governments will expand domestic biofuel programmes to reduce reliance on vulnerable import routes such as the Strait of Hormuz.
Increased demand for biofuel feedstocks has prompted investors to target crops including corn, soyabeans and vegetable oils, which are used in ethanol and biodiesel production.
Market participants also point to tightening fertiliser supplies, with disruptions linked to reduced flows through the Strait of Hormuz and lower gas availability impacting production in key exporting regions. Fertiliser shortages are expected to increase production costs across global agriculture, further amplifying inflationary pressures.
Despite the sharp increase in energy prices, agricultural markets have so far shown more moderate moves, with corn prices up around 6% and soyabean oil rising approximately 23% since the conflict began.
Some investors are using agricultural commodities as indirect plays on energy inflation. Hakan Kaya, a portfolio manager at Neuberger Berman, said he has reduced direct exposure to oil and gas in favour of agricultural “proxy baskets” that include corn, canola and livestock.
Policy developments are also reinforcing demand expectations. In the US, ethanol blending mandates and support for domestic farmers are underpinning demand for corn-based fuels, while countries in Asia, including Indonesia and Malaysia, are expanding biodiesel blending requirements.
At the corporate level, agricultural trading groups are already seeing the impact. Archer Daniels Midland recently raised earnings guidance, citing stronger biofuel-related margins in soyabean crushing and ethanol production.
However, analysts caution that while biofuel demand is rising, it does not necessarily imply a traditional agricultural supply shock.
The United Nations’ food and agriculture agencies have previously cautioned that sustained energy-driven demand for crops used in biofuels could contribute to broader global food inflation if supply conditions tighten further.
