The agricultural policy organization Farm Foundation has released a new report on what's driving food prices this year.
Foundation President, Neil Conklin says the report is a follow-up to similar studies they commissioned when prices were up in 2008 and 2009:
“The purpose of the report this time, is really to both provide policy makers in the public sector and decision makers and stakeholders in the private sector with the kind of information that we need to make difficult choices about where we’re going in terms of food agriculture and energy policies.
This time, we’ve tried to put some additional emphasis in the report on the medium and long term implications of what’s going on. The 2008 and 2009 report focused very much on what was happening in the near term, and what that meant in terms of commodity and food prices. Certainly, we’re addressing those issues in the report, but we’re also trying to take a little longer term view than we did the last time.”
Agricultural Economist Wally Tyner with Purdue University says they identified two major commodity demand shocks in 2011: the use of corn for ethanol and Chinese soybean imports:
“The easiest way tot think about it, is thinking in terms of the amount of land it takes to satisfy those two demands. So, in 2005 we were using about 16 million acres to supply all the ethanol in the United States and Chinese soybean imports. In 2010, it took 46.5 million acres, which is an increase of 189% just to satisfy those two demands, and that amounts to 29% of the total US acreage in corn and soybeans. So, that is a huge change over the last few years, and it means today that our stocks-to-use ratio is very low, for both corn and soybeans in the US, we have 20 days of corn, and 24 days of soybeans, something like that. And so, these two things taken together, either one of them by themselves wouldn’t have necessarily caused the run up that we’ve seen.”
Purdue Economist Chris Hurt says another major factor is market inelasticity -- both on the demand and the supply side:
“An area on the supply side that we’ve seen, is that land in our first surge on prices that we had in 2007 and 2008, there were some crops that were relatively in more abundant supply like cotton and sugar. When we saw the corn, soybean, wheat prices go much higher, we saw land shift over particularly to corn and soybeans, and come out of some of these other crops, well that caused these crop prices to come up then on into 2010, 2011. And so today, there’s just not any crop land that really is available to shift over to the high demand crops of corn and soybeans.”
The report also noted that with grain stocks much tighter, weather is a bigger concern now than it was when prices were up in 2008.
Read the full report "What's Driving Food Prices in 2011? here...