What is in this article?:
- The new norm for farmers worldwide is high commodity prices, high volatility of production costs and little or no safety net for crop failures.
“The new norm for farmers worldwide is high commodity prices, high volatility of production costs and little or no safety net for crop failures,” says Sterling Liddell, vice-president for Rabo Agrifinance.
Speaking at the Southern Peanut Growers Association meeting in Panama City Beach, Fla., Liddell said prices U.S. farmers get for their crops over the next few years will in part be driven by farm decisions made in China, India, Russia and Brazil.
Over the past four to five years corn has been a driver in the commodity market and indications it will remain the crop to watch over the coming years, Liddell says.
By 2006, corn prices had stabilized over a period of years at less than three dollars a bushel — that’s what corn growers expected to get paid for their crop.
In 2006, corn prices started to go up and continued to go up and now appear to be stabilized at nearly double the price farmers received prior to 2006.
Two primary factors caused the price of corn to go up and thus influenced the price of other crops that had to compete for acreage and markets. The near worldwide recession and the emergence of ethanol as a major market for corn created demand and reduced supply.
Any time new demand on the scale of that created by ethanol for corn two things happen: You either increase supply or you increase price. Since 2006, ethanol use has grown to five billion bushels a year — and continues to increase, but at a slower rate, while demand for livestock feed and other corn uses has decreased slightly.
At the same time ethanol was driving up demand for corn, the world, or most of it, experienced a recession. Two countries least affected by the recession were China and India. Both have emerging global economies and rapidly rising middle classes, thus increased demand.
Brazil was only marginally affected by the recession and recovered quickly, primarily because of their ability to produce their own energy in the form of ethanol from sugar, Liddell explains.
In the Midwest, soybeans and wheat had to compete with corn for acreage, driving supply down. Combined with worldwide production problems, the increased demand for grain from emerging countries, the need to price other grains competitive with corn, and other economic factors significantly reduced worldwide stocks of wheat and soybeans, creating more demand and increasing prices.