Crop prices have been on a strong rally this year. As global food inflation fears grow the strong bullish momentum for agricultural prices have reached new highs. Coupled with crop weather damage around the world and record Chinese demand the Bloomberg measure of global farm commodity prices have hit their highest level in more than 8 years. This helps nudge consumer prices higher around the world.

Last Thursday’s drop

This was the worst daily loss since January 2012 and saw the Bloomberg measure of global farm and commodity prices fall 3.8%. Some of that was attributed to the US Department of Agriculture predicting more supplies of corn, soybeans and wheat in the coming marketing year.

China’s demand booming

The demand from China is booming according to Bloomberg. There are more large purchases of corn expected this month. This should mean that more plantings will be needed in South America this autumn and that good weather will be needed in both the northern and southern hemisphere summers and beyond. In that scenario there will be enough supply and prices can drift lower. However, any serious weather issue and prices could spike higher. One to watch for the commodity traders and for inflation watchers. The market is ultra-sensitive to inflationary pressure as the reaction to the US CPI on May 12 showed markets. If inflation is perceived to be moving higher too quickly then it could easily result in some volatile prices action across currency markets. Keeping track of inflationary pressure will be a key market focus for the near term future.