New research by two University of Illinois farm economists suggests that bakers and snack makers will continue to experience cost pressures, as we enter what the U of I researchers call "the new era of corn, soybean and wheat prices".
The new price era is based on the tethering of corn prices to gasoline prices because of bio-ethanol, said the researchers.
"The key is what happens in our crude oil and energy markets," said Scott Irwin, one of the authors of the report. "The risk on the downside is technological breakthroughs that would dramatically reduce oil consumption, lowering the whole price structure. If anything, though, the risk is on the other side. We likely are going to continually be bumping into demand for crude-oil production that we can't easily get above."
While the economists see the record prices as a good thing for farmers, the increases are not good news to bakers and snack makers, who are passing on costs to consumers.
In July, the American Bakers Association (ABA), for example, called for government support to help stave off the current high prices for its products, suggesting consumers were at breaking point in terms of affordability.
Soy and wheat
The price of soybeans has almost doubled from the 1973 to 2006 average of $6.15 a bushel, said the researchers, and could average $11.50 a bushel. Similar sustained prices could be observed for wheat, with an average $5.80 a bushel predicted, up from $3.24
A doubling of corn prices is also possible, said the researchers, and could average $4.60 a bushel in Illinois. The 1973 to 2006 average was $2.42 a bushel. The prices could hit as much as $6.70 a bushel depending on other variables such as the weather, they added.
Crop alternatives to corn are also unlikely to affect the prices, said the researchers. Co-author Darrel Good said that alternatives such as switchgrass are also reliant on crop land, and would continue to drive up prices for other grains, just as corn has raised prices for soybeans and wheat.
"We would have to steal land away from corn to grow a different energy-related crop, so now you have that competition again," he said.
Frame of reference
Irwin says the study stemmed from concerns as farmers tried to get a handle on rising prices when markets turned volatile in the wake of the ethanol boom.
"There was frustration that they no longer had a frame of reference," Irwin said. "This is our first effort to try to provide some perspective on what might be high and what might be low, with all of the caveats about how difficult that is to do."