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Corn Prices Surge as Government Cuts Forecasts

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Forget about the yellow metal. Now it’s all about the yellow kernel.

Corn prices have rocketed up as the U.S. government cut its crop outlook, encouraging broader fears of higher prices for food and biofuels and a repeat of the global food crisis in 2007-2008.

The U.S. Department of Agriculture slashed its forecast for corn yields in the US, the world’s main exporter of the grain, by the most in decades. Uncle Sam says the ratio of leftover stocks to demand will fall to a 15-year low in coming months.

Corn ended 5.2% higher yesterday, bringing its two-day gain to 11.5%.

The Financial Times also notes the role that a weaker greenback is playing here: weakness of the US dollar makes U.S. corn more attractive to importers, supporting demand.

Of course, it isn’t just corn that’s rallying: commodities across the board are spiking higher. The CRB all commodities spot price index dropped from a high of 446.18 on April 27, 2010 to 411.73 on June 7. Since then, it has shot up to 491.48, a record high. It now exceeds the previous record high during 2008 by 2.1% (Hat tip: Yardeni Research).

The rising price of foodstuffs could be tough news for American consumers, stressed as they are already by high unemployment and languishing home prices. But not everybody is complaining: as The Wall Street Journal reports this morning, the overall economy might be struggling but the farm economy is bouncing back.

Overall, the USDA projects net farm income to climb 24% this year to $77.1 billion, the fourth highest ever.
POSITION:  No positions in stocks mentioned.