June 14, 2006

 

Disparity between US grain prices causing dissent

 

 

Dry-weather conditions, ethanol, a fervent futures market and better transport networks are now heating up the US grain markets while local cash prices have remained stagnant, causing farmers to wonder if they have been left out of a good deal. 

 

Corn from the 2007 crop is commanding more than US$3 a bushel in the Chicago futures market, said Kent Thiesse, an agriculture banker, adding that a large part of that demand would have been driven by ethanol.

 

On Monday (Jun 12), corn prices in Chicago hit a nearly two-year high, US$2.74 a bushel for December delivery of this year's crop, largely because of forecasts for hot dry weather across the western Corn Belt.

 

The higher futures prices is prompting the Missouri Farm Bureau to protest the lower, per-bushel prices being paid in Missouri compared with what is being reported in Chicago.

 

However, an agriculture economist said farmers are not the scapegoats for the market.

 

Various factors affect the market that sets wheat prices that are paid to area farmers, said Melvin Brees, University of Missouri agriculture economist.

 

Prices at local grain elevators often are lower during harvest whereas futures markets are based on anticipated future demand, thus some differences would be expected.

 

While Chicago prices are based on world demand for wheat, the local cash market is more closely tied to demand and supply.

 

Elevators set prices based on their location. When elevators pay lower prices to farmers, they need to avoid having the supply outstripping their storage capacity, Brees said.

 

Moreover, currently in the US there is a record level of carry-over soy harvested in earlier years and a lot of corn, competing with wheat for bin space.

 

Futures market investors are concerned that drought would affect wheat production in states such as Oklahoma, Kansas and Texas. That results in higher futures prices for grains, Brees said.