Corn's price had dropped this year on good weather in April, suggesting a bumper year of record crops.
 
Early in the week, the price for corn was languishing at around US$3.25 per bushel - near the lows of last September's US$3 mark. Therefore, the speculators took a net short position of 39,426 contacts.

 

USDA put the recent decline in planting down to falling temperatures hampering the planting of the remaining acreage and threatening emerged plants.

 

Stockpiles in the warehouses were also falling at a much faster rate than last year. Around half of the world's corn comes from the US and it is used for everything from animal feed to oils. One of the longer-term reasons why stocks are falling is the rising use of corn for motor fuels. These factors caused the biggest one day rise for corn since 1988 as funds appeared to sell off energy and metals futures to cover their short positions.

 

Meanwhile, something was afoot in the wheat market as well, driven unsurprisingly by more unexpected weather changes. The concern has been for hot weather in Russia, damaging the crops. Estimated stocks of wheat have swung around unpredictably from more than 100 million tonnes, compared with 97 million tonnes last year, to what looks like could now be 82 million tonnes if the drought continues.

 

These rising prices had been caused when hedge funds were forced to deliver on contracts they had sold in recent years betting on a fall in coffee prices. It caused a mini-price boom, with investors piling in to take advantage of a 12-year high. These sharp movements and their root causes need to be watched carefully by agriculture investors, says Simon Denham, chief executive of Capital Spreads.

 

Longer-term supply and demand trends are one reason why agriculturals can reap steady rewards for investors.

 

The longer-term trend of population growth means planting will struggle to keep up with demand, while the effects of climate change mean weather patterns are going to become even more erratic and extreme in future - to the probable detriment of crops.

 

The UN forecasts that the world population will exceed 9 billion by 2050, up from about 6.1 billion now. The population of developed nations is expected to rise to 1.28 billion from 1.23 billion, but the number of people in developing nations is expected to leap to 7.9 billion from 5.6 billion. All of these mouths will need to be fed.

 

Perhaps the most important factor relates to meat consumption. Richer people eat more meat – and this has a disproportionate effect on agriculture. It has been calculated that, to make one tonne of meat, it takes seven tonnes of corn - plus 7,000 gallons of water. As a society develops and gets richer the demand for grain goes through the roof as more meat is consumed.