The ethanol-fueled spike in grain prices is likely to sustain increased prices for corn, wheat and soybeans over a price era that could easily last two or three decades, say two University of Illinois economists. Darrel Good and Scott Irwin say corn could average $4.60/bu. in Illinois, with weather and market-induced price swings sending it as high as $6.70 down to $3. The forecasts are based on Illinois grain prices, but Good says increases will likely be similar on a percentage basis in other grain-producing states.

Their report, entitled “The New Era of Corn, Soybean and Wheat Prices,” pegs soybean prices as averaging $11.50/bu., up sharply from the 1973-2006 average of $6.15, with swings from $8.20 to $19. Meanwhile, wheat could average $5.80/bu., up from $3.24, dipping as low as $3.30 or as high as $10.15.

Research reveals just two earlier lasting increases in grain prices. The first came after World War II, when price controls were lifted and post-war rebuilding began. The second began in 1973, sparked by shifts in exchange-rate policies, massive grain purchases by the former Soviet Union and a period of escalating energy prices and more rapid inflation.

Irwin says this new price era will be sustained by corn prices that are now tethered to near-record gasoline prices because of ethanol. “The key is what happens in our crude oil and energy markets,” he says.

Irwin says food costs have likely seen the worst of the shift to higher-priced grain after posting 5-6% increases this year. But he warned that commodities account for just 20% of food costs, so prices could still rise to cover labor, transportation or other expenses.
-- University of Illinois release