Lately, the media has been filled with stories about how America’s Corn Belt has been experiencing the worst drought in 50 years with no end in sight. The severe dry heat across the Midwest has destroyed much of the nation’s corn and soy crops. The summer harvesting season, which just two months ago was expected to produce a “bumper crop”, has now been drastically downgraded by the USDA. According to some estimates, 78 percent of the US corn-growing regions are in drought.
The anticipated cuts in crop production have already caused corn prices to soar. And because corn is used in 75% of supermarket products, you can expect to see your grocery bill continue to rise. For those who already on a tight budget or a fixed income, this is unwelcome news.
However, it is unlikely that the price increase will be dramatic. According to a 2008 USDA report, less than 16 cents of every dollar spent by shoppers went to farms. The remaining 84 cents went to labor, packaging, transportation, advertising, etc.
For current investors, be careful not to chase corn at these levels. At the first drop of rain, I would expect corn prices to fall quickly. However, who knows when that will occur?