Farmers benefit from long-term, above-average prices

After decades of crop surpluses and corresponding low prices, a sea change in grain markets appears to be ushering Iowa corn and soybean producers into an era of sustained prosperity.

Cash prices for corn and soybeans - the state's two principal grain crops - have been as high as they've ever been in February, according to market analyst Sue Martin of Ag & Investment Services of Webster City.

If weather problems threaten the 2011 crop, “you could see corn topping $10 a bushel and soybeans topping $20 a bushel,” said Martin.

Corn and soybeans reached their record highs - $7.99 a bushel and $16.37 a bushel, respectively - shortly after the peak of the record floods in summer 2008.

“My sense is we are in a new era,” said Chad Hart, an agricultural economist at Iowa State University.

While prices will likely stabilize below current levels, they will remain well above long-term averages, he said.

In fact, corn futures in Chicago fell 30 cents, or 4.2 percent, to $6.90 a bushel Tuesday. The price had hit $7.23 Thursday, a 2 1/2-year high.

Soybeans lost 70 cents, or 5.1 percent, to $13.11 a bushel. The price now is down almost 10 percent from the recent peak of $14.51 a bushel on Feb. 9.

Wheat futures slumped, too - down 60 cents, or 7 percent, to $7.95 a bushel.

“I think food could become almost as important as petroleum in world politics and international relations,” Martin said.

Some economists say that's already true. Ed Yardeni, president of Yardeni Research, was fretting earlier this month when he talked to AOL DailyFinance's Dan Burrows:

“Governments are scrambling to purchase more grains to quell food riots,” Yardeni said. “The idea was to avert deflation and to bring back just a tiny bit of inflation. The unintended global consequences seem to be hoarding, hyper-inflating commodity prices, food riots and revolutions.”

The 20th-century history of grain farming in Iowa, with a few notable exceptions, has consisted of surplus crops, low prices and taxpayer support to keep farmers in business.

After decades of stable low prices, grain prices rose dramatically following the secret sale of 24 million tons of grain to the Soviet Union in 1972. They spiked again in the mid-90s following a short crop, but quickly retreated, with an average per bushel cash price in the years 2000 through 2006 of $2.05 for corn and $5.58 for soybeans.

During the past four years, however, the per bushel cash price has averaged $3.95 for corn and $9.76 for soybeans.

“It has been a very unusual period since 2007. No doubt about it,” said Neil Harl, an ISU economist.

While market spikes have been short-lived in the past, this one is going into its fifth year, he said.

“We saw the end of the surplus grain era in 2006 with the onset of the ethanol phenomenon and increased global demand for food, coupled with the ability to pay for it,” Harl said.

The increased worldwide demand for food is “the most enduring component” of higher grain prices, said Harl. Ethanol's demand on corn stocks is dependent on government policy.