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Grain price boom stirs fears of eventual bust

Posted February 12, 2008 10:00 pm

Tim Landis

Grain prices that have surged into "uncharted territory" have even farm-industry analysts wondering when higher prices for products from breakfast cereal to eggs will begin to affect consumer buying habits.

So far, the balance appears to be holding, a University of Illinois Extension grain-marketing specialist said Tuesday.

"It's become a worldwide situation. We haven't seen any cutback in consumption, and our exports remain strong," said Darrel Good, referring to a just-released forecast from the U.S. Department of Agriculture of continued growth in demand for U.S. corn, soybeans and wheat in 2008.

"There seems to be no immediate end to it," said Good.

Federal projections of a need for more grain, and land to grow it, contributed to all-time highs in the past week of $5.65 a bushel for corn (July 2009 contracts) and $14.03 per bushel for soybeans (July 2008 contracts) on the Chicago Board of Trade. Spring wheat reached a high of $15 a bushel on the Minneapolis Grain Exchange.

Prices for all three grains drifted lower this week, but they remain at the highest levels in at least a decade.

Virden farmer Kendall Cole said he decided last fall to stick to his traditional mix of two-thirds corn and one-third soybeans on his 1,100-acre farm this year, despite the promise of higher corn prices driven by ethanol demand.

Cole, who has been farming since 1967, said he has seen boom and bust cycles before, and that farmers also are paying higher prices for fuel, fertilizer, seeds, equipment and other production materials.

"All that glitters is not gold," he said, noting that fuel and transportation costs are bigger factors in food prices than the costs of grain.

"We use to say there's 3 cents' worth of corn in a box of Corn Flakes. Now, it's maybe six cents' worth."

Chatham resident and teacher Dawn McClain said she shops a little harder these days to stay within her family's $400-a-month budget for groceries, including by using a bag-your-own Aldi discount store in Springfield.

"I just kind of stopped buying the name-brand cereals because it's so outrageous. I just buy generic," said McClain.

Her husband, Benjamin, is an outpatient and rehabilitation supervisor for St. John's Hospital, so Dawn McClain is taking a break from teaching to be at home with the couple's three sons, Tristan, age 6, Aiden, age 4, and Landon, age 1.

McClain said despite the demands of three growing children, she is careful about avoiding quick-stop milk prices in favor of a discount store.

"We probably go through three gallons of milk a week, but we're trying to stay within our budget," she said.

Commodities analyst Jim Bower said during a conference call with the Minneapolis Grain Exchange late last week he has seldom seen such volatility in grain markets during more than 30 years in the business.

Bower, who operates Bower Trading Inc. in Lafayette, Ind., said he is concerned about a repeat of the mid-1990s, when high grain costs drove down demand, and prices paid to farmers flattened out for several years.

"We are in uncharted territory, and it's not an enviable position," he said.

"Farmers and ranchers need to make money, but if you get prices that go into outer-space levels, we know from history it hurts demand and prices fall."

Bower said election-year politics also likely would join the already-volatile blend of farm, fuel and food prices.

"These food prices could go on for a while, but I do believe it's going to be a major plank in this election," he said.

Tim Landis can be reached at (217) 788-1536.

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