Severe heat and drought in the American Midwest have seriously damaged the maturing corn crop, triggering yet another food price panic. Ever since the memorable food price spike of 2008, it hasn't taken much of a drought in any grain-growing region to rattle the market. Two years ago it was a drought in Russia. Last year it was a near-drought in China's northern wheat belt. Now we have hot and dry weather in the US corn belt.

Because of very little rain over the past six weeks, roughly 30 percent of the entire corn crop in the United States is now rated in "poor" condition, compared to just 9 percent in poor condition at the same time last year. If rains do not fall soon, the damage will increase. The US Department of Agriculture has now cut the projected size of this year's crop by 12 percent from its optimistic June projection, and in the last six weeks corn prices have increased 33 percent. The US is the source of roughly 60 percent of all corn exports, so the higher prices are radiating outward. China is increasing its corn imports this year, and was lucky to have made at least one round of US purchases in May, when the price was still low.

Soybeans are another worry. China currently depends on the world market for nearly 60 percent of its total soybean requirements, and about 40 percent of these imports have recently come from the US. Because the US soybean crop is also under drought and heat stress, future prices for soybeans have been rising, up to $15.29 per bushel for November delivery. Buyers in China are now absorbing this price hit, and speculators on the Dalian exchange are reacting to the drama.