There have been widespread rumors of severe frost in Northern China that may be destroying corn yields.  Frost is often a commodity's worst enemy, and many analysts are expecting this frost in Northern China to negatively affect Chinese yields.  This decreased supply in China will subsequently drive up corn costs around the world as global supply continues to fall below demand levels.

Weak Midwest harvest

The Midwest harvest in the United States is currently facing some challenges as heavy rainfall has caused a pause in harvest yield reports.  Reports coming in, however, have tended to disappoint to the downside.  Although places like Indiana are posting positive reports, many Midwestern states are reporting yields of around 10 to 15 bushels per acre lower than last year.

This combination of increased demand around the world for corn and a weakened supply due to frost in Northern China and disappointing yields in the United States is causing corn prices to run up in this current bull market.  Prices have now topped out at a two-year high above the $5.20 area, but a continued run up is likely, especially if the Midwest harvest yield reports continue to disappoint and show weakness to the downside.

Many corn exporters engage in currency tradingin order to hedge against wild currency exchange rate volatility that can undermine bottom line profits.

Jennifer Gorton is the content manager of Forex Traders.