Recent hot and dry weather has fueled concern that grain prices could rise over the coming year. Iowa State University economist John Lawrence notes that U.S. corn stocks are ample today, but growing demand for ethanol adds to the concern in case of a short crop.

Lawrence notes that December 2006 corn futures traded above $2.85 per bushel in mid-May, an increase of 45 cents since January. December 2007 futures, meanwhile, were over $3.10 and December 2008 were over $3.20, indicating that traders expect prices to trend upward in the long term.

But while weather and demand issues support prices, most markets are seeing a weak basis, notes University of Illinois economist Darrel Good. The average spot cash price of corn in central Illinois on June 1, 2006, was 28 cents under July 2006 futures, Good notes. The harvest delivery bid was 31 cents under December 2006 futures, compared to the previous four-year average of 23 cents under. For more information, from Good, follow this link.

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