US drought threatens to fuel food inflation The Commodities Research Bureau/Reuters Food index represents a basket of prices of basic foodstuffs. The index has been falling for most of the year, but has rallied by 10pc since June. This will feed into inflation in the next few months as more than 10pc of the consumer price index related to food. That's does not include the impact on restaurant and hotel prices. If we do not get rain in the near term then corn prices and related crops such as soybeans and wheat will continue at these elevated price levels. As a result the Governor of the BOE may not get the falling inflation numbers that he so desires," Mr O'Shea adds. The prospect of rain over the next week could help US crops, which have been shrivelling in record heat. Analysts have already started to cut their corn yield forecasts and further downside is expected. The United States Department of Agriculture (USDA) initially forecast a yield of 166 bushels per acre. The crop got in the ground very early this year and as a result it is now in the key pollination phase," Mr O'Shea explains. This is the key maturity phase for the crop and as such is the period in which it is most dependant on the weather. Corn needs water to grow and reach maximum yield potential and over the past 2 months in the US Midwest it has been exceptionally hot and dry. If this continues for the next few weeks then we could see substantial downgrades to the size of the US corn crop and could lead to further corn price increases," Mr O'Shea noted. The USDA provides regular reports to the market with their next update on July 9th. They have not updated their yield forecast but many in the market are forecasting yields below 155 bushels per acre and even some below 150. "The Food and Agriculture Organisation (FAO) reduced its forecast by 25 million tonnes," Commerzbank noted on Friday. The agricultural weather forecasting service Cropcast now expects a yield of only 150.6 bushels per acre and a crop of 13.18 billion bushels. The Commodity Weather Group expects a yield of 152.2 bushels per acre and a crop of 13.52 billion bushels," the German bank noted. Sugar prices are also on the verge of reversing their bearish trend. Nine of 11 analysts surveyed by Bloomberg at the end of last week said they expected raw sugar to keep rallying next week and two were bearish, albeit from a relatively low base. This is the highest proportion of bulls since January. Also, bullish positions held by hedge funds rose 29pc according to the latest data from the US Commodity Futures Trading Commission. However, rain in the US could reverse all this and food prices are nowhere near the catastrophic levels that prompted more than 60 food riots worldwide in 2008. Corn price would have to gain another 70pc to match the highs of 4 years ago. With oil prices reversing their recent decline, embattled consumers may not get the inflationary relief they have been hoping for. With Sir Mervyn set to pull the trigger on another £50bn of quantitative easing, inflation could become a problem once more. Thermal coal rebound puts pressure on Glencore Prices for thermal coal, a fuel used mainly in power generation, have staged a small rebound in the last fortnight, after heading down for months. US utilities are consuming less coal as they shift to cheaper natural gas in the wake of the shale gas boom, while the rise in US coal exports has swamped weakening demand from Asia. One knock-on effect of even a slight recovery is that it puts pressure on trader Glencore to boost its offer for miner Xstrata, the world's biggest exporter of thermal coal., say analysts. Resource nationalism still miner's biggest problem, say experts The threat of resource nationalism remains the number one risk for miners, according to new research from Ernst & Young. Resource nationalism is the name given to attempts by states to take a bigger slice of the profits from their natural resources, be it through tax grabs, raised royalties or even forced nationalisations. Always a concern, it has become a more pressing worry for miners as they have enjoyed record profits against a backdrop of increasingly cash-strapped governments. Mike Elliott, Ernst & Young's global mining leader, said resource nationalism is now an even bigger challenge than when it topped the industry's risk list 12 months ago. "There is no doubt projects around the world have been deferred and delayed, and in some cases investment withdrawn altogether because of the degraded risk/reward equation," he said. The uncertainty and destruction of value caused by sudden changes in policy by the governments of resource-rich nations cannot be understated. The industry's skills shortage, amid a record level of new mining developments, likewise remained in second place. Climbing the list of risks from sixth to third place, was access to infrastructure. Cost inflation was also listed as a more pressing concern, climbing from eight to fourth place.