A Small Amount of Good News for Corn Prices

Despite the report of what can almost be considered a statement of the obvious by Purdue University, corn and sugar prices continued their market drop. While corn prices were up slightly on Friday by .8%, prices were down by 6% for the week, and Market Watch reported that prices have fallen nearly 20% for the month of July. The cause of the decline?

Weather in the Midwest corn belt is expected to be positive for the length of pollination period from July 20 to July 30, according to AccuWeather.com. The period marks the most critical phase for determining how much corn each plant will yield.

The Cattle Network, however, said to proceed with caution before getting excited about the price drop. They say the "Summer Price Slide" may be coming to an end:

Buying of physical commodities is picking up. Wheat is due for a seasonal post-harvest price upswing. Speculators appear to be sitting tight on remaining long positions. Other traders are nervously covering short positions, feeling the markets may be oversold. Traders will be watching weather reports closely for the rest of the summer.

Back to the Purdue study, which found that a mixture- not one defining factor- is causing food prices to rise. The IndyStar published a comprehensive breakdown of the findings:

Four reasons for rising food costs

High oil prices
As the price of oil goes up, so does demand for ethanol, which raises corn prices. Increased ethanol demand also makes other farm supplies like fertilizer, diesel and propane more expensive.

Weak dollar
Oil and agricultural commodities are priced in dollars. As the dollar gets weaker, these products become cheaper for other countries to buy, which increases demand.

High consumption, low production
Worldwide, consumption has grown faster than production since 2000. This is not due to increasing populations in China and India, however, as the two giants are agriculturally self- sufficient

Weather and crop diseases
Because supplies are low, any hiccups in production -- from last year's drought to this year's floods -- have a greater effect on food prices.

Wally Turner, one of the economists who contributed to the report, said to look for prices to increase and hold for at least another two years as farmers increase planting to keep up with greater demand.

Further Reading:

The International Herald Tribune on the US Commodity boom losing steam.