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Ag News: Food Prices are On the Rise

While economists search for answers from yesterday's U.S.D.A. reports, the bottom line is consumers are going to feel it in the pocket book.

Some say that yesterday's much-awaited U.S.D.A. announcements are much ado about nothing. The ag market tends to hold its breath anticipating the March 31 grain stocks and prospective plantings reports.

Somewhat based on speculation and intentions, the news was expected. The answers will change. Still, yesterday's closing bell let us know how important these reports have become.

In early March, approximately 85,000 American farmers surveyed said they intended to plant more corn, to the tune of a roughly 4 million acre increase. If that happens, the U.S. will see the second-largest corn planting since World War II. 

The weather man may have something to say about it, though. How much and which kind of crops could drastically change by the time seeds get into the ground. 

The real meat and potatoes of yesterday's reports had to do with the stock market's response to them. All day yesterday, the corn market was up the limit at 30 cents as far out as a year this coming July, according to Bill Johnson, an agriculture economist at Joliet Junior College (JJC). 

"What it means is that we are probably going to test the old contract highs, certainly in corn, and maybe make new ones," he said.

There are a lot of people who want to buy corn but cannot, he said, largely due to price. The increase of global demand for Illinois and U.S. grain is on the rise. He cautioned that we need to keep in mind that at some point, we are going to run out of buyers.

Impact on Local Farmers

Illinois is in the heart of the corn belt. Growers here already know they are going to plant as much corn as mother nature and other variables will allow. Locally, we are not going to experience much change in the types or amounts of crops planted, Johnson said.

The fringes of the corn belt, such as the Dakotas, will have greater impact in the fluctuation of crops, Johnson said. 

If prices hold, farmers will be able to sell their remaining quantities of old corn for the current prices, Johnson explained. This increase in corn prices is not a new trend.

Although this year expected to be the second largest corn acreage since 1944, the first wasn't long ago. That was in 2007. Right now, the market is providing the highest prices. 

"History tells us that nothing goes on indefinitely," Johnson said. "There are always major corrections and trends." 

Globally, the demand for protein is increasing. China, for example, has become the largest consumer of U.S. farm goods, corn being the largest U.S. crop. The Chinese want to eat more beef and pork, and they need our local corn to do it. 

Food Prices on the Rise

The impact on the average local consumer will be in the grocery stores. 

"The price of food is definitely going up for a variety of factors," Johnson said. "One of those is higher corn prices and also higher oil prices due to transportation costs and processing costs."

Before these U.S.D.A. reports were released, corn prices were already high. One of the biggest impacts will be on producers of beef and pork. 

According to Johnson, the price of meat in the stores is more closely linked to the farm price of cattle and hogs than the price of corn flakes or bread is linked to the prices of wheat or corn. That's because there is less than a dime's worth of corn in a box of corn flakes. 

Next Friday's Ag News will discuss food prices in depth. Learn ways to prepare for the impending cost increases. Also, find out what is the single biggest expense of every dollar spent on food. It's not what you think. 

STEVE BROCKMAN April 03, 2011 at 02:37 PM
If your blaming crop prices on the increase in your food prices, think again. One example is the cost of bread. The general rule of thumb is that one bushel of wheat will yield enough flour to produce 100 loaves of bread. A good acre of wheat will produce enough flour for 10,000 loaves of bread. A year ago wheat was somewhere around $4.75-5.00 per bushel or about .05 cents per loaf of bread. Today, wheat has gone up about 50% to about $7.25-7.50 per bushel, making the wheat that goes into that loaf of bread about .02 1/2 cents higher than a year ago. A year ago at Walmart the loaf of wheat bread I usually buy was $1.39 per loaf. Last week that same loaf was $2.29. The .90 cents difference can not be contributed to the cost of wheat, that's for sure. Be careful of what you keep hearing on the radio and television about all the farmers getting rich and cashing in on high food prices. Yes, we are making a little more money, and its about time, but certainly not at the expense of the the consumer by any means. If you read the history books, it was the agriculture community that brought us out of the great depression in the 30's when the farmers started to make a little money for all his labor and investment. It put a lot of people back to work in many different businesses. Maybe the agriculture community can do it again in the twenty-first century in some small way. Thanks for the soap box. Steve Brockman
Erin Gallagher April 03, 2011 at 03:13 PM
You're right, the largest single factor in the price of food is not crops. Farmers aren't to blame here -- at all. Next Friday's column will explain how we come to pay these prices for food, and why some people think we are on the edge of chaos for global food supply. Ag and economics is such a huge topic with endless tentacles. This column barely scratches the surface. Keep reading each week for a better-rounded perspective.
Delos Thompson Jr. April 04, 2011 at 03:09 PM
It's all about oil. If the U.S. would harvest some of it's own oil in La., Montana, Alaska and other oil producing states, and increase refinery capacity, the price of gas would drop back to $1.50 a gallon. This would not make corn viable for ethanol production and would have to be grown for grain. Food and feed prices would come come down along with transportation prices and fertilizer cost. It's all about what our government wants or is persuaded to do!

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