New crop price plateau?
Are this year's $6- and $7-per-bushel corn and double-digit-dollar soybean prices too good to be true?
“We were at $3.80 (per bushel) corn not that long ago,” says Brent Gloy, Purdue University agricultural economist. “From there to over $7 cash corn at times this year represents unprecedented swings. I never thought we would see $3-per-bushel swings without a major disaster.”
These higher levels may last longer, Scott Irwin, University of Illinois (U of I) agricultural economist, thinks crop prices are on a new plateau. There's lots of room for volatility in all this. Still, Irwin and fellow U of I agricultural economist Darrel Good first predicted a new price plateau for corn, soybeans, and wheat back in 2008 and 2009, and they're sticking to it. Irwin talked about it at last summer's Top Crop Farmer Workshop at Purdue University.
New plateaus rarely happen. The last one occurred in the 1970s, when prices leaped due to factors including surging demand from the then Soviet Union.
Back in 2008 and 2009, Irwin and Good stated that a new plateau began in January 2007. Back then, they predicted these average Illinois crop prices:
● $4.60 per bushel for corn.
● $10.58 per bushel for soybeans.
● $5.80 per bushel for wheat.
So how did they do? Here are the actual average monthly prices from January 2007 to February 2011 in Illinois:
● $3.99 per bushel for corn.
● $10.09 for soybeans.
● $5.36 per bushel for wheat.
Although those prices came in under predictions, Good and Irwin say the numbers are still in the ballpark. And it confirms their belief that we're in a new era for prices.
The U of I economists split price plateaus into three eras:
1. January 1947 to December 1972. During this time, average monthly Illinois per-bushel prices were $1.28 for corn, $2.63 for soybeans, and $1.77 for wheat.
2. January 1973 to September 2006. During this time, average monthly Illinois per-bushel prices were $2.42 for corn, $6.15 for soybeans, and $3.24 for wheat.
3. January 2007 began the third era.
The biofuel boom is helping to drive today's price plateau.
“That's occurred primarily in the U.S. on the ethanol side, but it's also had an important impact on the vegetable oil side for biodiesel requirements in the EU, Brazil, and Argentina,” says Irwin. “When you put those together with another market component of very high crude oil prices, you have an explosive situation. We think this is a big game changer that is moving us to a higher level.”
This is also coupled with emerging market growth in China and India. China and India have 37% of the world's population with 2.3 to 2.4 billion people.
“Every agricultural industry person has said we have to ramp up agriculture if we have 2 billion more mouths (from today's 7 billion) to feed by 2045,” says Mike Boehlje, Purdue University agricultural economist.
That's only true, though, if those countries have money to buy food, says Boehlje. So far, the rapidly growing economies of emerging nations like China have helped spur surging demand for U.S. crops and livestock.