The July contract, which had been the most-active until Friday, rose 3.2% to $US7.3175. The December contract gained 13% last week and traders say the price of the most active contract (on a rolling basis) is now up nearly 90% in the past year. Around 30 centimetres of rain fell across the flooded areas of the Midwest last week, and floodwaters are still rising in wide parts of Iowa and are threatening parts of other states.
Flooding has also swamped parts of other big farmland, including Minnesota, Wisconsin, Michigan, Missouri and Kansas and damaging crops. The cost in damage to cities and towns is estimated at more than $US1 billion (which will hurt the insurance industry which has been struggling with falling returns, soft premiums and the impact of the credit crunch).
The United States Department of Agriculture had cut its estimate of this year's harvest which is now thought to be at least 10% down on the 2007-08 crop. The impact won't be known for months until the harvest starts because the rain will cut yield and restrict the development of plants in affected states.
But traders say the damage will be bigger than the cuts announced last week. Ethanol prices surged to a two-year high on Friday off the back of the floods, the rise in corn prices and the cut in the estimated size of the harvest.
The steady surge in corn prices (over 25% in the past two and a bit weeks) will further squeeze margins for US ethanol producers, who have been cutting unprofitable operations. Some have also been hit by the floods in Iowa and nearby states. Ethanol producers are already forcing US corn prices higher and are expected to consume around one third of this year's harvest production.
That will pit them against the food industry in the US and exporters and consumers in Japan, Europe and China. July soybean futures rose 23.5 USc to $US15.60 a bushel in Chicago. The price rose 7% last week and its now within 26 USc of the all time high in early March. The price of beans is up nearly 90% in the past year.
Soybean prices are also been driven higher by the continuing uncertainty about what is happening in Argentina, the world's third major producer, where the government and farmers are at loggerheads over taxes which take more of the price the higher it goes. The spot ethanol price in the Midwest rose 40 USc a gallon last week to close around $US2.69.
US agri-giant, Archer Daniels Midland has closed its Cedar Rapids ethanol plant in Iowa because of the flooding. Tornados have damaged at least two other plants and around five or six have closed in the past fortnight because the rise in corn prices have made them uneconomic, while natural gas prices have risen off the back of the soaring price of crude oil.
Gold and silver rose on Friday to remind traders they were still around, but both were notable for their weakness amid the rediscovery of inflation in the US in the past week or so. While the gold prices were higher Friday, they still lost 2.9% last week, the second week in the past three they have fallen.
Comex August futures rose $US1.10 $US873.10 an ounce in New York. (Gold hit a record $US1,033.90 on March 17.) July silver rose 7.5 USc to $US16.56 an ounce on Comex. Silver prices are still up 11% this year, while gold is up 4.2% (compared to 31% in 2007). US consumer prices are up 4.2% in the year to May, and have been accelerating slowly in the US and much more quickly in Europe and some Asian and emerging economies.
