Red-hot food inflation that has vexed policy makers around the world seemed to take a breather last month, when corn and wheat prices tumbled on reports that crop shortages were easing.
The sell-off was also driven by global economic worries that prompted funds to exit grains in droves.
But prices are climbing again, and have already made up half of June's losses. The sell-off masked an unnerving reality: The world remains just one Midwest heat wave or global crop disaster away from another damaging price run-up that could revive concerns over food security.
With grain supplies still tight and worldwide demand growing quickly, food price inflation looks set to remain high and even worsen in the years ahead.
It will likely take years of near-perfect crops to replenish global stockpiles of corn and wheat, the staples of the world food system, and minimize the risk of price spikes.
"The bottom line remains that on a worldwide basis, the interest for these commodities, grains in particular, has evolved over the last five to seven years such that we need big crops all the time," said Bruce Scherr, chief executive officer of Informa Economics.
Stockpiles of corn in the United States, the No. 1 producer, are forecast to drop to 16-year lows - 870 million bushels - by summer 2012. As a percentage of use, that would be the second-tightest since the Dust Bowl devastated crops in the 1930s.
This time around, crops are historically large, but demand is also surging due to Chinese consumers and U.S. ethanol producers.
As for wheat, the USDA projects world inventories will improve by June 2012 to reach 182 million tonnes, up from their 26-year low of roughly 126 million in 2007/2008 during the last run-up in prices. But growing demand, notably from the livestock sector, will keep prices high, as will a scarcity of high-protein, high-quality milling wheat.
It all adds up to pressures ahead. The United Nations' Food and Agriculture Organization said this month that in 2011/12, improving crops should push world food prices down from a year ago - but not dramatically.
"The upward pressure on some of these food prices has maybe been tempered for the minute," said Bill Lapp, president of Advanced Economic Solutions, a commodity analytical firm based in Omaha, Neb. "But I don't think it has gone away."
U.S. corn futures at the Chicago Board of Trade set a record high near $8 (U.S.) a bushel on June 10, then plunged 23 per cent in the next three weeks. CBOT corn fell 15.8 per cent during June, its biggest monthly drop in two years.
Most of the sell-off came the last day of the month after the U.S. Department of Agriculture stunned the trade by reporting much larger U.S. corn plantings and old-crop stocks than analysts had expected.
But over the past week and a half, prices have recouped half those losses on forecasts for hot weather that threaten to crimp the crop, which already faced widespread planting delays due to heavy spring flooding.
"We do have more breathing room for corn and soybeans and wheat than we had, relative to expectations," Mr. Scherr said.
"But we've got a whole long summer in front of us. We need solid yields on these larger acreages to make sure we have ample crops, because ample crops are needed to meet these growing demands," Mr. Scherr said.
Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, concurred, recalling how late-summer heat trimmed U.S. corn yields in 2010, dashing hopes for a bumper harvest.
"Last year at this time, we had not seen the big run-up in corn prices yet. We were still expecting a near-record crop and that is not where we ended up," Mr. Westhoff said.
"It's just a reminder that things can always surprise you," he added.
On the demand side, China remains a wild card for the corn market. In 2010 China became a net importer of corn for the first time in several years, and the country is expected to import up to 5 million tonnes of corn in 2011, the U.S. Grains Council said last month.
"Unlike in 2008, [Chinese]corn stocks have been drawn down appreciably. On any kind of a break in the market, they are going to be buyers to restock those reserves," said Rich Feltes, vice-president for research with R.J. O'Brien.
"I would say a late-2008 plummet in commodity prices is not likely for that reason," Mr. Feltes said.
China bought as much as 1.6 million tonnes of new-crop U.S. corn in recent deals as CBOT prices slumped. Talk that more business could be in the works helped lift futures off the late-June lows.
"We don't expect Chicago corn or soy prices to fall further by a big margin. Even with good weather later, U.S. soy supply could have the tightest stocks in years," said Shi Yan, chief analyst with Xinhu Futures.
Federal mandates that require growing use of ethanol in U.S. fuel will also underpin demand. USDA this month projected that for the first time, ethanol plants in 2010/11 would consume more corn than cattle, hogs and poultry.
CBOT wheat staged an even bigger slide than corn, falling 37 per cent in nearly five months after hitting a 2-1/2 year high in February. Its 25-per-cent fall in June was the biggest monthly loss since 1974. But it too has rebounded abruptly.
Wheat suffered a similar investor exodus as corn and other commodities in the second quarter of 2011, when the Reuters-Jefferies CRB commodity index staged its biggest drop since the collapse of Lehman Brothers triggered a global market meltdown.
While the USDA expects global wheat production for 2011/12 to rise 2 per cent to 662.42 million tonnes, the third-highest on record, consumption is rising almost as fast.
"You look at the wheat balance sheet on a world basis, and consider that last five or six years, we've increased wheat consumption by 10 million tonnes per year, while prices were rising," Informa's Mr. Scherr said.
"What that tells you is you've got people with incomes around the world who are demanding these commodities as part of what I call a broad base of infrastructure expansion."