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Bob Dinneen

Bob Dinneen

Posted: August 21, 2008 02:26 PM

With Falling Grain Prices, Will Consumers See Lower Prices in the Supermarket?

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The latest crop reports are in. Substantial increase in grain production outlook and decreased speculation have seen a sharp drop in prices for corn, wheat and soybeans, yet anti-ethanol critics continue to complain. What's going on?

In the agency's August 2008 World Agriculture Supply and Demand Estimates (WASDE), a clear picture of the resiliency and productivity of American farmers emerges. Farmers in the US have faced obstacles of historic proportions this year as flooding threatened to severely hamper crop production in the American Midwest. As should have been expected however, American farmers have once again stepped up to the plate demonstrating that they can meet the feed and fuel needs of our economy.

This is surely disappointing to the Big Food and Big Oil companies who very much want to derail the movement to renewable biofuels from wood chips, switch grass and other cellulosic materials - with the goal of producing 36 billion gallons in the energy bill passed last year. For much of this year they have mobilized their companies and others to blame ethanol for driving up the price of corn and food. Despite numerous studies documenting that the role of ethanol was minimal and the impact of skyrocketing oil prices was far greater at every level of the food chain, these critics have kept up their drumbeat.

They ignored a study from Texas A&M University which found that reducing the level of ethanol production would have little, if any, impact on corn prices and that high oil prices were the dominant driver. A more recent study by economists at Purdue University found that skyrocketing oil prices, not ethanol production, accounted for 75% of the increase in corn prices.

Despite all the adversity, farmers paid no heed to the attacks and went about their business. And their dedication and hard work is now coming into focus.
According to the USDA's new report:

• Corn yields are expected to exceed a stunning 155 bushels per acre, the second highest average yield in history. These impressive yields are expected to produce nearly 12.3 billion bushels of corn, the second largest crop in history. As a result, corn supplies are expected to be higher than anticipated, providing enough corn for all users.

US wheat production is expected to be the largest in 10 years and 20% higher than 2007. Wheat stocks, by extension, are expected to rise 88% from last year, providing enough wheat for all users. Globally, wheat production is expected to set a record at 670.8 million tons, up 10% from last year.

• While the resiliency of American farmers is extraordinary, the response to growing demand for grains by the rest of the world's farmers is equally worth noting. Globally, total grain production is expected to well exceed 2 billion metric tons, increasing 3.5% over last year and 9.3 percent from two years ago. This record production is also expected to lead to supplies of grains to move higher, up 6% from last year.

Often overlooked as well is that grain prices have fallen precipitously in recent weeks. Since highs in June, corn prices have fallen 35% with cash contracts today offered at well below $5 a bushel. Likewise, wheat prices have spent the majority of the year falling. Since a peak in March, wheat prices are down 37%.

This is why this recent crop reports and declining oil prices are such good news for American families. Now food companies, which have been charging consumers much higher prices for food can start reducing prices to make food more affordable.

The bottomline: World agriculture is more than capable of fulfilling its traditional role as food and feed providers, while also contributing significantly to a renewable, sustainable energy future. Our nation's energy crisis will not solve itself. It will require bold action and thoughtful collaboration. Together with America's ethanol industry, American farmers stand ready to play our role in helping to feed America and other parts of the world while reducing America's dependence on foreign oil.

 

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