January 25, 2011

 

Global grain prices approaching record high

 

 

Global demand has been a big factor in lifting the prices of corn and soy as markets closed on Friday (Jan 21), it was noted that corn was US$6.57 per bushel on a March contract, soy were $14.12 per bushel for March.

 

Live cattle were US$112.68 per hundred weight on an April contract, and lean hogs were US$86.58 per hundred weight in April.

 

"The biggest thing right now, is you are seeing a global economic recovery," said Chad Hart, an assistant professor for the Department of Economics at Iowa State University in Ames.

 

Corn exports have risen by 3-4%, while soy exports have seen a dramatic increase. China and India are two countries spurring the demand for both grains.

 

"China has been pushing exports of soy," said Hart, who also serves as an ISU Extension economist.

 

China uses a great deal of soy in meal feed for hogs, as pork is a big food item in a land of 1.3 billion people.

 

Another driving force in the price of corn has been the demand in the ethanol manufacturing sector, said Hart.

 

A third factor motivating grain prices upward was the wet nature of the 2010 planting season. In much of Iowa, the rain started in spring and didn't let up. Some farmers were still planting, and replanting, soy on the Fourth of July.

 

"Farmers got the corn crop planted so early," Hart said. "Expectation was it would be a bumper crop."

 

The USDA overestimated the yields for corn, and the wet weather took its toll on the eventual harvest.

 

"That lack of yields is driving up prices," Hart said.

 

The prevalence of sudden death syndrome disease in soy also reduced the harvest numbers.

 

Though current prices of corn and soy are near an all-time high, the high-water mark was reached in the summer of 2008. Corn reached a record of US$7.61 per bushel, while soy skyrocketed to US$16.63 per bushel.

 

Farmers experienced a similar boom time in grain prices in the early 1970s. Corn jumped from a range of US$1 to US$1.24 a bushel in the 1960s to a high of US$3.02 in 1974. Soy sold for US$2.13 to US$2.75 a bushel in the '60s but leapt to US$6.64 a bushel in 1974.

 

When grain prices rise, cost increases are going to be seen elsewhere, such as feed prices and eventually food cost at the grocery store.

 

Hart said corn and soy are mainly used in feed for livestock.

 

"It takes a few months to go up," Hart said of prices inflating in other areas.

 

The price of fertilizer, and seed corn and soy already are rising for the upcoming planting season, he said.

 

When grain prices hit its peak in summer 2008, farmers with livestock trimmed back the number of head in their herds.

 

"The pork and cattle industries contracted in 2008 and 2009," Hart said.

 

With grain prices so high, it makes farmers consider different planting options. Nationwide, 900 million acres are considered agriculture land with the breakdown being a third of it really good tillable land, a third in pasture, and a third in forest. In a given year, farmers may move 10 million acres from one category to another.

 

Hart said, with corn and soy doing well, farmers may turn alfalfa or pasture ground into a corn or soy field in 2011. Farmers in states bordering the Midwest, may switch from planting oats, barley and sorghum to a more profitable crop like corn and soy. Hart grew up in Missouri and he already has seen less sorghum being planted in his home state in favour of Iowa and Illinois' favourite crops.