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Due to the jump in grain prices for CORN  ( quote ) and soybeans ( SOYB , quote ) from the drought in the Midwest farm belt of the United States , the United Nations Food and Agriculture Organization's food price index rose 6% in July, the steepest spike in nearly three years.

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.

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