In the News - May 2008
Why are grain prices so high?
LITTLE ROCK - The reasons that grain prices are so high and you're paying
more for food at the supermarket are numerous, according to Dr. Bobby Coats,
extension economist and professor with the University of Arkansas Division of
Agriculture.
"First, until proven otherwise, I believe that we are in a global bull market
for commodities," he said. "This market started building around 2000 and will
last into the latter part of the next decade, if not beyond."
Second, he said, global growth appears sustainable even with domestic and
global credit problems. This leads Coats to believe that the global bull market
in commodities will continue with increasing demand from a growing global
consumer base with growing disposable income.
He noted that global grain inventories have been declining since 1998 and are
now dangerously low, at less than a two-month supply, which helps keep grain
prices high.
"Pertaining to rice, hoarding of this particular commodity is occurring in a
number of countries around the world, which is increasing its price on the
global market," Coats said. "Remember, the global supply of rice is adequate.
The world supply in the current marketing period is projected to be above the
world supply in the previous marketing period."
Coats said that another reason for high grain prices is that it has been a
decade since a catastrophic global weather event occurred, so this is adding to
global rice and grain price strength.
Speculators and large investment groups see real investment opportunity in
the commodity sector. With U.S. equities continuing to show signs of weakness,
the previously mentioned factors make commodities a good investment option for
savvy investors, especially large funds.
"Arkansas rice and grain row crop producers in 2008 have seen their cost of
production increase by almost 100 percent since 2002, so a return to what most
consider normal prices is not likely," he said.
Coats said yet another reason for high grain prices is that some of U.S. and
global economies' negative problems have added to price increases. Credit
problems, currency issues, and resulting inflation are good examples.
"Lastly, there's no question that the demand for corn to produce ethanol is
one factor in the current high price of corn and grains," Coats said. "Corn for
ethanol is simply not the villain that many people suggest. Looking into the
future, I believe that food, fiber and energy production on the farm will
complement each other in most years and be a real plus for the consumer.
"Alternative energy and biofuels are in the early stages of development in
this country and globally. It's extremely difficult to realize just how vast the
global demand for energy will be in coming years," he said.
He believes it's a must to aggressively fully develop the biofuels sector.
Tomorrow's biofuels sector will be much more efficient and look different than
today's sector. He said if there was a major global food crisis, products from
the biofuel crop acreage could be diverted immediately into food production.
The Cooperative Extension Service is part of the U of A Division of
Agriculture.
May 2, 2008
Media Contact: Lamar James
Extension Communications Specialist
U of A Division of Agriculture
Cooperative Extension Service
(501) 671-2187 or (501) 753-0207
ljames@uaex.edu
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