U.S. commodity prices rising because of demand, weather

Local farmers say near-record-high corn and soybean prices might seem like a good thing but will actually hurt them in the long run.

Over the past year agricultural commodity prices have risen 18 percent, according to the Creighton Economic Forecasting Group, based in Omaha, Neb., which tracks agribusiness trends.

"I like good prices, but they're too high," said Roger Schwab, of Jackson, who grew about 400 acres of corn last year. "When prices go this far out of whack, it's going to hurt demand. It will come around to bite us later on."

Right now, world demand for U.S. corn, soybeans, rice, wheat and cotton is high due to middle-class growth and improving economies in China and India. At the same time, disastrous weather, including a severe drought in China and Argentina and floods in Australia, destroyed crops and hurt worldwide supplies.

"China's economy is good and people in China are wanting more meat products to improve their diets. It takes corn and soybeans to produce chicken, pork and beef. That demand is really what's changed this around," Schwab said.

In addition to animal feed, the use of corn and other grains as alternative fuel sources has also added to demand, driving up prices, he said.

Corn prices are nearly double what they were this time last year, trading at $6.98 a bushel Wednesday. Soybean prices are 57.2 percent higher than a year ago, trading at $15.51 a bushel, according to the Chicago Board of Trade.

"Everything that goes up must come down," said Charles Hinkebein of Chaffee, Mo., who raises corn, soybeans and wheat on his 2,500-acre farm.

"It's hard for everybody when prices get this high. We're seeing a lot higher prices on everything else, like fertilizer, feed and implements. Those prices won't come down when grain prices do."

Fertilizer now sells for $600 a ton, while this time last year it was $250 a ton, he said.

Higher prices are likely to encourage local farmers to plant more acres next year and work to get higher yields per acre, said Schwab, who predicts some Southeast Missouri pastureland may be converted into cornfields this spring.

The U.S. Department of Agriculture reported Wednesday that the nation's reserves of corn hit their lowest level in more than 15 years. The decline in reserves sent corn futures surging in trading Wednesday.

The weak U.S. dollar also is promoting exports of U.S. crops overseas, said Dr. Mike Aide, chairman of the Southeast Missouri State University Agriculture Department.

"About half the soybeans grown in the Bootheel go overseas," he said.

Farther south into the Bootheel where cotton is a cash crop, farmers are seeing prices at $180.58 a bale, 144.1 percent higher than one year ago, according to the Chicago Board of Trade.

"Cotton prices have gone through the roof," Aide said. "We've never seen cotton prices like this."

Consumers don't need to worry too much about the higher commodity prices meaning higher prices at the grocery store or their favorite local restaurant, according to Dr. Bruce Domazlicky, director of the Center for Economic and Business Research at Southeast Missouri State University.

"Most agricultural commodities make up a fairly small percentage of the food we eat. Think of bread and how much goes into making it ... the actual wheat is a small part of the total value, therefore, the inflationary impact is not likely to be great," Domazlicky said.

Given that agriculture is a large sector in the Southeast Missouri economy, higher commodity prices will give incomes in the region a boost.

Across the Midwest, agriculture has helped shore up the region's economy, according to the Creighton Economic Forecasting Group's latest survey. Its mid-America business conditions index rose for the fourth straight month to 58.9 in January. That compares with 57.5 in December, 55.9 in November and 52.3 in October. Any score above 50 suggests growth over the next three to six months.

mmiller@semissourian.com

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