Archive for the ‘grain demand’ Category

High grain prices are affecting Minnesota farmers, consumers and the global economy

By Melissa Thompson

Minnesota farmers have been selling grain at historically high prices lately, and it doesn’t look like this trend will stop anytime soon.

The demand for grain, specifically corn and soybeans, has reached an all-time high. Corn, which normally sells around $4 per bushel, has been selling at nearly $8 per bushel.

“I’ve owned farm land for six years, and I made more money than I ever have last year,” said farm owner Joel Thompson. “It’s a good time to be a grain farmer.”

Matthew Traen has watched the prices soar over the past few months. As the grain manager and merchandiser at the Hutchinson Cooperative in Hutchinson, Minn., he buys grain from farmers and sells it to various vendors on a daily basis.

“The problem is that farmers just can’t produce enough corn for everyone who needs it,” Traen said.

According to Traen, the USDA reserves leftover corn at the end of the year. This aids as a buffer to keep the market stable in case of a natural disaster or a bad crop year. A comfortable level of reserves is around one billion bushels. This year, they estimate there will only be 675 million.

“This spike in prices is like nothing we’ve seen before. In the past, high prices have been because of crop failure. Now, farmers are growing as much corn as their fields will allow, but it’s just not enough. There’s too much demand, and not enough supply,” Traen said.

Where is the grain going?

One of grain’s main functions is to feed livestock, and a large portion is being exported to farmers, in China. The US is the only country that produces mass quantities of corn. Argentina and Brazil are the only other countries beside the US that export soybeans. Rural areas of China are becoming more developed, and the hog industry is booming. Their need for grain is high.

“I’d compare the Chinese hog farmers to American farmers back in the 1950s. They weren’t marketing their crops. They were growing them for their own use. Now, China’s development has jumped from the 1950s to the 1990s in a matter in only a few years. They produce more hogs than the rest of the world combined. Grain exports have been a major driver for the increased price of grain,” Traen said.

Grain as an alternative fuel

Grain is also used to produce ethanol, a renewable fuel source that is added to gasoline.

The federal government has been subsidizing ethanol.  Essentially, they’ve been paying people to produce it in order to conserve oil. Minnesota has more E85 pumps than any other state. The current Minnesota law requires that all gasoline be 10 percent ethanol by 2013, but the legislature may expand biofuel use even more.

“Ethanol production has grown tremendously in the past five to six years, especially in our area of the country,” Traen said.

Although increased ethanol use may help with our dependence on foreign oil, it increases the demand, and ultimately the price, of grain.

Grain in the global market

With advances in medical technology and longer life spans, the global population is at its highest point. It is only continuing to grow, which makes grain an even more precious commodity than it already is.

“People are saying that because of the growing population, in 20 years we’ll need twice as much corn as we have right now. We only have so much farmland to work with,” Traen said.

How will high grain prices affect consumers?

Just like in any market, when it costs more to produce something, the extra expense is passed on. Consumers will see these price hikes in not only cereal and bread. The price of food in general is likely to rise.

“Corn at $7 to $8 per bushel is very hard for farmers who don’t farm grain. Grain farmers are making all kinds of money, but it’s an extra cost for dairy and cattle farmers,” Traen said.

Traen says the price for milk is low right now, and dairy farmers are struggling. Eventually, they won’t be able to afford that extra cost and the price of milk products and meat will go up as well.

“If for some reason our reserves run out, corn would be like gold. Corn at $7-$8 per bushel could be more like $15 per bushel. And your pound of hamburger that you get from the grocery store could go from $3 a pound to about $10 a pound,” Traen said.

Will grain prices go back down?

Grain prices won’t stay high forever. If the supply can’t keep up with the demand, the market will ration corn naturally. Farmers won’t be able to afford the high price of corn, so they will feed their cattle alternative foods, such as weeds if necessary. People will buy food that is not affected by the corn price. Farmers will have some time to build up their supply.

Another possibility is that seed companies are actively producing a new type of seed that is genetically modified to produce more corn per acre. Traen says the average acre of land produces 165 bushels or corn per crop year. Seed companies, such as Pioneer Hi Bred and Monsanto, expect the new seeds will increase corn production to nearly 300 bushels per acre in the next decade.

“These seed companies are spreading rumors that they these new seeds will be able to almost double our yield. We haven’t seen it yet, and it will probably be ten to fifteen years before we do, but they’re talking about it,” Thompson said.

Traen is optimistic about the market turning around and corn prices returning back to normal.

“The nature of the grain market is cyclical, and it will always come back down. Whether it’s because seed companies come up with a solution, the market rations itself, or even if there’s a natural disaster. We can never know for sure, but history says it will,” Traen said.