Champaign, Illinois – An ethanol-fuelled spike in grain prices will likely hold, yielding the first sustained increase for corn, wheat and soybean prices in more than three decades, according to new research by farm economists at the University of Illinois.
Corn could average $4.60 per bushel (all prices U.S.) in Illinois, nearly double the average $2.42 per busel from 1973 to 2006, according to the Darrel Good and Scott Irwin, professors of agriculture and consumer economics. They said that price swings stemming from weather or other market variables could send corn as high as $6.70 or as low as $3.00 per bushel. “The extreme low prices in terms of the new era would have been considered awfully good prices in the old era,” Good said.
Soybean prices could average $11.50 a bushel, up from an average of $6.15 calculated from 1973 to 2006, with swings from $8.20 to $19.00 a bushel. Wheat could increase to an average of $5.80, up from $3.24, with possible swings from $3.30 to $10.15. Although the forecasts are based on Illinois grain prices, Good said increases will likely be similar on a percentage basis in other grain-producing states.
The researchers found only two earlier lasting increases in grain prices, the first coming after World War II when price controls were lifted and postwar rebuilding began, and the second in 1973, sparked by shifts in exchange rate policies, massive grain purchases by the former Soviet Union, and a period of escalating energy prices and more rapid inflation. Good said the new era mirrors these earlier ones, driven by the growth of ethanol, and accompanied by higher inflation and production costs that have been permanently inflated, and that this new price era could easily last two or three decades, sustained by corn prices that are now tethered to near-record gasoline prices because of ethanol.
Good also said that new prices would not be affected by a shift to other feedstocks such as switchgrass, as finite land available for production would continue to drive up prices for other grains, just as corn for ethanol production has raised prices for soybean and wheat. “We would have to steal land away from corn to grow a different energy-related crop, so now you have that competition again,” he said.