A Hot Summer for Corn Prices

July 11, 2012 | Greg Leonberger, FSA, EA, MAAA, FCA, Partner, Director of Research

This summer’s unusually hot weather combined with little rain is shaping up to have a profound impact on corn yields for 2012. At the close of trading on Monday, corn futures settled at $7.75, up 40% since June 1, and 12% since July 1. These radical increases in price are a clear reflection of small yields for corn, and thus lower supply to meet both domestic and foreign demand. Further compounding the corn outlook is weather forecasts, which continue to predict below average rainfall for the next few weeks. As a result, we are likely to see further increases in corn prices.

What does it all mean for investors? If one is long corn via a futures contract or commodities fund, this news is likely accretive. However, for companies that rely on corn as a key input for production, this represents an added cost of production and a drag on profitability. For consumers, higher corn prices will probably equate to higher grocery bills.