Chart of the Week: Corn, Soybean Prices Spike Higher Again
After a brief respite thanks to some rain, the drought resumed its tight grip on the US Midwest and already-high commodities prices are moving higher still.
One of the worst droughts in decades is poised to wreak havoc on soybean and corn harvests in the United States, but as this week’s Chart of the Week shows, also has made agricultural commodities into one of the most attractive asset classes for investors.
Earlier in July, corn and soybean futures set records before falling slightly within the last week as a storm front finally dropped some rain in the U.S. Midwest. But the amount of rain that the grain-growing region received wasn’t as much as farmers needed, and now forecasts are calling for another period of hot, dry weather.
So far this year, investors who have taken stakes in wheat, corn and soybean spot contracts or futures are sitting on returns that are north of 20% — far better than they could have earned in other asset classes. In the case of wheat, the outlook for global supplies has been further affected by weather in Russia, where a dry spell looks as if it, too, will take a toll on crop size.
It appears likely, as this Reuters news report suggests, that as crop damage reports multiply, so will the impact on commodity prices. Commodity analysts have already described prices as venturing into uncharted territory, saying that it’s virtually impossible at this stage – at the height of the growing season – to gauge the full impact of the drought on crops. Moreover, high prices are only starting to ration demand on the part of such market participants as ethanol manufacturers, who consume corn to make the fuel.
The U.S. drought will have ripple effects around the world, too, given that it is one of the world’s major grain exporters. That, in turn, may take a toll on economies in some emerging markets.
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