Crop conditions across the US are still deteriorating, with less than a quarter of the corn crop now in "good or excellent" conditions.
|Percentage of corn crops in "good or excellent" conditions|
What's even more troubling is that the weather is not cooperating. The National Weather Service forecast for the continental US over the next 1-2 weeks looks dreadful. The precipitation levels...
|Precipitation 8-14 Day Outlook (source: NOAA/ National Weather Service)|
... and the temperature are both expected to be significantly worse than historical averages. This is threatening to cause further crop damage.
|Temperature 8-14 Day Outlook (source: NOAA/ National Weather Service)|
On the back of these weather forecasts and crop damage estimates, agricultural commodity prices are hitting records again.
Bloomberg: - Corn surged to a record, heading for the biggest monthly gain since 1988, as the worst drought in at least a generation lingered in the U.S., threatening yields in the world’s biggest grower and exporter. Soybeans and wheat also rallied.
Corn futures for December delivery climbed 2.5 percent to $8.1275 a bushel on the Chicago Board of Trade, after touching an all-time high of $8.1725. The most-active contract has surged 28 percent in July.
Soybean futures for November delivery gained 2.6 percent to $16.4375 a bushel on the CBOT. The oilseed, which reached a record $16.915 on July 23, is up 15 percent in July. Wheat futures for September delivery rose 1.8 percent to $9.14 a bushel in Chicago. The grain, which can replace corn in livestock feed, has surged 21 percent this month.
|Corn nearby futures contract (source: Bloomberg)|
And as discussed before, high food prices are already propagating through emerging markets economies.
The Times of India: - It's not only the prices of staples, edible oils and vegetables that have been rising. Prices of eggs and chicken (protein food items) may also rise in the coming months. Scanty rainfall and higher global prices have led to a huge increase in average prices of poultry feed in the country, which is also an early indicator of the potential impact a drought may have on food inflation.This is a dangerous development for two reasons. We will see more civil unrest across emerging markets - particularly in the Middle East. Also the large emerging markets nations (and some developed nations as well) will be unable to stimulate their economies effectively because of inflationary concerns, resulting in a significant hit to global growth.
Average prices of poultry feed - consisting of oilseed cakes, rice bran, grounded maize and soya - rose by 69% year-on-year in July up from 18% in June, due to lack of rainfall and higher global prices, a Nomura research says. These price increases outpaced those during the 2009 drought. Feed is a key input in poultry farming, and this sharp price increase suggests that prices of eggs and chicken (protein food items) may rise sharply in the coming months, the note adds.