Factors Besides Biofuels Are Affecting Crop Prices

ISU economist offers analysis of crop market conditions - and what may lie ahead.

Strong demand for U.S.-grown corn and soybeans, both for export markets and for biofuel production, is the cause of upward pressure on prices for those commodities, according to Chad Hart, an ag economist at the Center for Agricultural and Rural Development at Iowa State University.

Hart is looking at the changing crop market and what might be causing this significant changes that are now taking place. The obvious factor here is the increasing demand from the ethanol and biodiesel plants being built all over Iowa, but there are a few other factors at hand, says Hart.

Due to crop shortages abroad, there is a strong export market for corn, soybeans and wheat. The increased demand has sparked competition for farmland for planting those crops.

Exports of U.S. grain remain strong

There is a worldwide wheat shortage, particularly in Australia, says Hart. It doesn't help that China had a rough winter, which led to low oilseed production. With Australia, China and other countries experiencing a shortage of crops, coupled with the declining value of U.S. currency, a good portion of our crop production is being exported. The USDA predicts 2.5 billion bushels of corn will be exported this year. We're at about 80% of that prediction already, at a time of year when normally only about 60% of the predicted exports have been sent abroad, says Hart. Again, this is partially due to the weakness of American currency. Foreign countries want to take advantage of the exchange. Thus, our corn is going to foreign economies where the dollar is the weakest. Foreign countries are now competing with biofuel producers for the crop supply, driving the market value up. This isn't necessarily a good thing, he adds. One of the largest uses of the U.S. crop supply is livestock feed. Increased demand for crops decreases the amount available for livestock production, driving up the cost of feed and hurting livestock producers.

Corn acreage decreasing, beans increasing

With all this demand for all different types of crops, it's no surprise that the acreage allotment prediction for each crop in 2008 is changing daily. A short while ago the USDA predicted 88 million acres for corn and 71 million acres for soybeans, but quickly changed their numbers to 90 million acres for corn and 71 million acres for soybeans. Corn and soybean markets have been rising as we see record high prices for these crops, but we are near record low stocks for corn and soybeans. The prices will depend largely on the weather this year – a drought is certainly possible, which would drive market prices up. A planting intentions report coming from the USDA at the end of March should reflect the jockeying for cropland among the different crops. The market will adjust when these projections for crop acreage become available on March 31, Hart says. Current predictions show corn acreage decreasing while soybean acreage will likely increase, in 2008.

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