Due to the jump in grain prices for
) and soybeans (
the drought in the Midwest farm belt of the United
, the United Nations Food and Agriculture Organization's food price
index rose 6% in July, the steepest spike in nearly three
[caption id="attachment_71389" align="alignright" width="300"
caption="Corn prices are reaching for the sky thanks to the heat"]
But even with the increase in grain prices, the food index is
still 10% below its February 2011 peak.
The United States produces about 40% of the world's corn.
According to the United States Department of Agriculture, the corn
harvest this year is the worst since 1995.
CORN reached a high on the day
that was announced last Friday.
The soybean crop is also in bad shape. This is evinced by the
grain prices of SOYB and CORN soaring since the onslaught of
the drought in June. Droughts in other crop-producing regions have
also taken a toll on the grain harvest.
The uneven trajectory of surging grain prices reveals the role
that speculators are playing in driving up the costs of grain. As
shown on the chart, there have been a number of pullbacks in the
price levels for both CORN and SOYB since early June. Other
commodity prices have followed the upward trajectory of CORN, based
on pure speculation and momentum trading.
Another factor that could take grain prices higher is if a third
round of quantitative easing (QE3) or other stimulus measure is
introduced by Federal Reserve Chairman Ben Bernanke at Jackson Hole
on August 29th at the annual summer economic policy summit.
QE2 lasted from November 2010 through June 2011, lowering
the price of the US dollar and raising the price of
commodities. QE2 is why the United Nations Food and
Agriculture Organization's food index reached its all-time high in
February 2011, in the middle of the program.