Grain prices shoot up

Farmers will reap a good harvest of cash this year as heavy foreign demand and the prospect of strong corn sales to new ethanol plants push prices well above recent averages.

And the prospects are good that the prices enjoyed by farmers this year will help set a stable, profitable floor for prices in the future, according to farm economists.

For consumers, the result could be higher prices for staple goods. And if livestock producers feel crowded by the higher grain costs, they could cut back production, pushing meat prices higher, economists said.

"I don't know if it is the best year for farmers, but it is probably a better year for grain farmers than it has been for several years," Stoddard County farmer Jim Steuver said. "It has been tough trying to make any kind of profit growing corn or soybeans or wheat for the last six years."

Prices dipped a bit Thursday on the Chicago Board of Trade after the U.S. Department of Agriculture released its latest crop estimates. But farmers delivering corn this week to the Midwest Grain and Barge terminal at the SEMO Port received prices as high as $3.68 per bushel for corn and $6.84 per bushel of soybeans.

Over the last eight years, corn averaged $2.10 a bushel and soybeans averaged $5.35 per bushel, said Ron Plain, an agricultural economist at the University of Missouri-Columbia.

"We had a huge, huge run-up in corn prices because of two things," Plain said. "One is that there is less corn than there was a year ago. The other is the fast increasing demand for corn, primarily to produce ethanol."

Southeast Missouri farmers are reporting an average yield of 166 bushels of corn per acre and 41 bushels per acre for soybeans, according to the Missouri Agricultural Statistics office in Columbia.

For a 100-acre cornfield in Southeast Missouri with an average yield, current prices mean an extra $27,000 in the pocket of the farmer. For a soybean field of that size, it's an extra $6,150.

Steuver farms 2,300 acres in Stoddard County raising cotton, corn and soybeans. Steuver, a member of the Missouri Corn Growers Association Board of Directors, said he's not getting the full benefit of this year's price rise because he sold much of this year's crop on future speculation as much as two years ago.

"Right now I have December delivery contracts, January delivery contracts and March delivery contracts," Steuver said. "And I have some corn left that is unpriced, and I can deliver it any time I want to and get the cash price."

He's locking in the current futures price for his 2007 and 2008 crops, he said, but the older contracts he's fulfilling now are at much lower prices than the current cash price.

"You don't hear me crying, but it doesn't feel good," he said. "But the price I sold it two years ago was considerably better than the cash price the last two years at this time."

Steuver will be watching prices for the rest of the year before making planting decisions for the spring, he said. "I will probably slightly increase my corn acres," he said.

But the change to corn won't be a big switch because of a heavy investment in machinery for cotton production, he added. Prices in future years will determine whether he reinvests in machinery for cotton or moves more heavily into corn and soybeans.

"Cotton is just a dead animal," he said. "The only good thing about cotton right now is we have had some better crops in the past two or three years. But it costs more to grow and it requires more specialized machinery."

The international dynamic pushing up prices results from a drought in Australia coupled with strong demand in China and Europe, said Gary Marshall, CEO of the Missouri Corn Growers Association.

"Really, in the last 10 years corn farmers and soybean farmers have not had the same higher prices that the livestock industry has had," Marshall said. "It is time for corn and soybean farmers to share in the prosperity."

The USDA on Thursday released crop predictions for this year, with the national corn crop estimated at 10.7 billion bushels. Soybean production nationwide is estimated at 3.2 billion bushels. If realized, the corn crop would be the second largest on record and the soybean yield would be the largest ever.

The best recent year for yields was 2004, when both corn and soybeans set records. Drought in a significant part of the Midwest depressed yields last year, but a variety of factors, including leftover crops from 2004, kept corn prices near $2 per bushel as recently as a year ago.

Based on the closing prices Thursday at the Chicago Board of Trade, this year's corn crop is worth $15 billion more than it would have been in an average year. The soybean crop is worth $4.3 billion more than recent averages.

"Obviously it is going to increase the amount of disposable income and replace a lot of the income they lost last year," Marshall said. "They will probably be feeding their families better, buying new things for the household and maybe trading automobiles. We have been working a long time to get this done."

The national move to rapidly expand ethanol production is having more of an impact on future crop prices than the current year's yields, Plain said.

Wheat has led the increase in current grain prices, with corn following suit, he said. That has led to pressure on soybean prices as speculators guess whether the high prices and the demand for corn to produce ethanol will result in a dramatic drop in soybean acreage, Plain said.

While world demand will ease if crops are good in the Southern Hemisphere, Plain said, the U.S. dynamic will keep prices high.

"The fundamental change from my perspective is we are building a very large ethanol industry and we are going to rely on farm crops for fuel for our automobiles," he said. "That is going to be a stronger demand situation than we have had in the past."

Congress will be writing a new bill for the support of farm programs next year. A large portion of federal spending on farm subsidies is designed to support prices. Southeast Missouri's 8th Congressional District received $1.5 billion in assistance from 1995 to 2004, the most of any congressional district in the state.

Futures prices for December 2008 and December 2009 were about $3.25 a bushel for corn Thursday. That price isn't likely to hold, Plain said, but corn should average $2.70 a bushel in future years, greatly reducing federal costs for maintaining the price.

A large portion of U.S. corn production is used to feed livestock. With the increased ethanol production, Plain said, it means a large portion could be used to feed automobiles.

"The livestock industry will respond by cutting back production, and less meat will mean higher prices at the stores," Plain said.

rkeller@semissourian.com

335-6611, extension 126