Growing demand for corn to use in biofuels and for soybeans to help feed a booming Chinese economy are among key forces driving commodity prices higher this year, according to a report by three Purdue agricultural economists.

A weak U.S. dollar, high oil prices, declining grain supplies and poor harvests in 2010 also contributed, they wrote in the report, which predicts that high prices will continue beyond the 2011 crop year.

The economists – Phil Abbott, Chris Hurt and Wally Tyner – detailed their findings in "What's Driving Food Prices in 2011," commissioned by Farm Foundation, NFP, and released Tuesday (July 19). Costs of commodities influence retail food prices as do general inflationary pressures such as transportation, packaging and food processing.

The report follows their analyses for Farm Foundation, NFP, in 2008 and 2009, when retail food prices also peaked.

For commodities prices in 2011, it comes down to world food and fuel demands exceeding supply in recent years.

"In the United States, we've typically had more grain and soybeans than we could use here," said Hurt, who specializes in grain and livestock markets. "Now we have to ask ourselves, can the U.S. and the other major suppliers meet all these world demands?"

Corn use for ethanol represented 27 percent of the 2010-11 crop usage, compared with 10 percent of the 2005-06 crop. The growing demand for corn to make ethanol and China's increasing desire for soybeans have been two big "demand shocks" for agriculture, the report states.

"When you put them on top of each other, the price impacts are a lot bigger than either one separately," Hurt said.

The amount of U.S. farmland needed to meet those two surging demands has increased from 16.1 million acres in 2005 to 45.6 million acres in 2010, an increase of 189 percent, according to the report. U.S. agriculture met these demands in two ways, the economists said:

• First, U.S. farmers shifted land into producing corn and soybeans and out of other crops such as cotton, wheat and sorghum. As a result, prices for most other crops also rose.

• Second, U.S. stocks were used to the point where there is a minimum inventory of grains today to meet any production shortage. As a result, any weather threats to normal yields in 2011 will mean higher prices.