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Corn prices spike amid Midwest drought

July 10, 2012: 11:52 AM ET

Click the chart to check prices of corn and other commodities.

Corn prices have soared more than 40% in recent weeks as the scorching, dry heat wreaks havoc on crops in the Midwest.

Prices went as high as $7.33 per bushel of corn on the Chicago Board of Trade Monday, not far from the record high of $7.9975 hit last June, amid worries about flood damage. Prices eased slightly Tuesday, as investors await the U.S. Department of Agriculture's updated forecast for harvest yields, which is due Wednesday morning.

The USDA has said that just 40% of the nation's corn crops are in good or excellent condition, down from about 69% last year. In Iowa, the top U.S. corn producer, only 42% of corn crops are rated good to excellent, down from 62% a week earlier and 82% a year ago.

"The current drought is affecting corn at its most critical stage, when crops needs moisture and heat that isn't so intense," said Sal Gilbertie, chief investment of Teucrium Trading, which runs the Teucrium Corn ETF (CORN).

About 50% of the corn crops are in the so-called silking stage, which is the first kernel growth period. Dry weather can limit the number of kernels that develop on each ear of corn, and in turn, substantially decrease the yield, said Gilbertie.

U.S. farmers have planted 96.4 million acres of corn for this year's harvest, making it the highest corn acreage in the last 75 years, and based on that, the USDA expected a record-high yield of 166 bushels of corn per acre. But given the drought, analysts are now expecting the the corn crop yield could drop even below last year's yield of 147 bushels per acre.

"There's concern that this drought could turn our worst fears into reality, but it's too early to know," said Gilbertie. "If the drought continues for the next two or three weeks, there's a high likelihood that corn-based inflation will rear its head. But if it ends sooner, we could see an alleviation of this extreme pricing."

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Hibah Yousuf
Hibah Yousuf
Reporter, CNNMoney

Hibah Yousuf is a reporter at CNNMoney, where she covers stocks, bonds, commodities and currencies trading across the globe, as well as corporate earnings and other markets-related news. Prior to joining the site in 2009, she interned at Money Magazine.

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