UN Food Price Index Jumps on US Drought (CORN, SOYB)

The United Nations’ Food and Agriculture Organization’s (FAO) Food Price Index for July rose by 6% following three months of decline. Sharp rises in grain and sugar prices led to the jump.

The US drought forced corn (maize) prices up by nearly a quarter in July:

The severe deterioration of maize crop prospects in the United States, following drought conditions and excessive heat during critical stages of the crop development, pushed up maize prices by almost 23 percent in July. International wheat quotations also surged (by 19 percent), amid a worsening of production prospects in the Russian Federation and expectations of a firm demand for wheat from the livestock sector for the second consecutive season because of tight maize supplies.

An expected tight supply of soybeans raised the oils/fats price index by 2% and the sugar price index rose 12% following heavy rains that hampered the Brazilian sugar cane harvest. Dairy prices were unchanged from June and meat prices fell -1.7%. Meat prices are falling as producers cull herds in an effort to lower feed costs. Eventually this will lead to tighter supplies, but that typically takes about nine months to a year to materialize.

Tomorrow’s release of the World Agricultural Supply and Demand Estimates from the US Department of Agriculture will include more information on the US corn crop. Last month the USDA lowered the corn crop estimate by 20 bushels/acre to 146 bushels/acre. A similar drop is not expected this month, but crop reports have not been encouraging.

The Teucrium Corn Fund (NYSEMKT: CORN) is up 0.25% just before noon today at $51.74 after posting a new 52-week high of $52.05 earlier today. The Teucrium Soybean Fund (NYSEMKT: SOYB) is up 1.61% at $26.45 in a 52-week range of $18.27-$27.58. Neither fund is heavily traded.

Paul Ausick