To see the impact of record-breaking temperatures around the world, watch wheat. Found in everything from bread to noodles, biscuits to cereals, beer to cakes -- there is no more widely grown staple crop and more than 170 million metric tons trade every year. So when the weather ruins harvests in one spot, it can shock markets and economies that are thousands of miles away.

1. How serious has it gotten?

It’s a weak global harvest, but not a disaster. The biggest growers -- Russia, Australia and the European Union -- have been hurt by heat or widespread drought and as a result, the world is heading for the first deficit in six years. While harvests in some places, especially northern Europe, have been terrible and cost farmers billions of dollars, no one is expecting major shortages. Farmers are coming off years of bumper harvests and stockpiles will help buffer the effects of a poor crop.

2. How is it affecting global trade?

Benchmark wheat futures in Chicago have soared to a three-year high as traders bet on diminished supplies. That’ll likely mean a higher food-import bill for countries that don’t grow enough of their own wheat, and could contribute to faster inflation in some places. The crop failures will also likely spur a shift in trade flows. For example, the U.S. is expected to capture market share with its big crops. Germany, usually an important grains exporter, is poised to flip to being a net importer for the first time in more than three decades.

3. Who could be affected?

In highly developed economies, higher wheat prices won’t significantly change the cost of bread you see at the grocery store. Poorer countries, particularly in Africa and the Middle East, are more sensitive to price fluctuations because they depend on food imports and it’s a bigger part of the overall budget. But wheat prices are still far below the levels from previous spikes and big stockpiles will keep a lid on prices.

4. Why is wheat a political issue?

Bread prices have a long history of kickstarting unrest and political instability. For example, in 2010, Russia experienced a record heat wave that damaged the wheat crop. The government responded by banning exports to make sure consumers had enough supply. Wheat prices in international markets doubled in a matter of months, raising the cost of bread for millions of people. During the food price spikes of 2011 and 2008, there were food riots in more than 30 nations across Africa, Asia and the Middle East.

5. What to expect next?

U.S. harvests are turning out to be better than previously expected, raising prospects of higher exports, which may partly offset reduced shipments elsewhere. Russia is still poised for the third-highest crop on record. But there are some concerns. Although denied by the government, the market has been shaken by speculation that Russia may limit exports should shipments top a certain amount. Ukraine is reducing exports and has emphasized the importance of keeping local food prices stable. And if harvests disappoint again next year, there could be more serious consequences.

--With assistance from Hayley Warren.

To contact the reporter on this story: Agnieszka de Sousa in London at atroszkiewic@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Dylan Griffiths

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