In addition to global food security concerns, higher commodity prices have stoked the flames of food price inflation and its potentially deleterious effect on lower-income households while raising costs for livestock feeders and food processors. Because the rising prices have been associated with unexpectedly large price volatility, they also have increased the risk and costs of grain merchandising all along the marketing chain. Finally, the high, volatile commodity prices have dramatically increased the cost of routine hedging activities (i.e., pricing commodities for purchase, delivery, or use at some future date) at commodity futures exchanges and thereby diminished "forward contracting" opportunities for grain and oilseed producers who are eager to take advantage of record high market prices. Not All Commodities Are Equal

The specific circumstances leading to high market prices—e.g., weather-related supply shortfalls, unexpected surges in demand, market-distorting government policies—vary in important ways for each of the major U.S. program crops. U.S. Farm Prices Projected Record High for Several Crops

As a result of the commodity price increases of the past several months, USDA is projecting record high season-average farm prices for nearly all of the major program crops—wheat, rice, corn, sorghum, barley, soybeans, and soybean products (soybean oil and soybean meal)—for the current 2007/2008 crop year, while farm prices for rice are expected to be the highest since 1973 ( Table 3 ). Further contributing to high commodity prices have been a series of international government policies to limit domestic export supplies that have heightened fears of shortage and a weak U.S. dollar that has made U.S. exports more competitive in international markets. Higher corn prices, in turn, have forced soybean, wheat, and other grain prices higher in a bidding war for available crop land. Most analysts agree that the current high commodity prices are likely to entice some marginal land back into production in 2008. Farm Commodity Market Outlook

		Positive Short-Run Outlook, Especially for Food Crops

For some crops, the price increases are likely to be relatively short-term in nature. Long-Term Outlook Hinges on Productivity Gains

Projections for a steady rise in global population, accompanied by sustained income growth in the world's developing economies, are expected to sustain growth in demand for livestock products and the feedstuffs—e.g., coarse grains and protein meals—needed to produce those products. In addition, the outlook for increased demand for agricultural feedstocks to meet large increases in government biofuel-usage policies, particularly in the United States and the European Union (EU), suggest that demand will increase strongly over the coming decade for corn (the primary feedstock for U.S. ethanol production), and vegetable oils (the primary feedstock for biodiesel production in the United States and the EU). As a result, even with a return to normal crop growing conditions and successful harvests, prices for feed grains and oilseeds—as well as those crops that compete for area with feed grains and oilseeds—are expected to remain at significantly higher levels than experienced during the 1998-2006 period. The two principal agencies within the United Nations (U.N.) responsible for international agricultural development and food aid are the Food and Agricultural Organization (FAO) and the World Food Program (WFP).
Prices for nearly all major U.S. agricultural program crops—corn, barley, sorghum, oats, wheat, rice, and soybeans—have exhibited extreme price volatility since mid-2007, while rising to record or near-record levels in early 2008. Several international organizations have announced that the sharply rising commodity prices are likely to have dire consequences for the world's vulnerable populations, particularly in import-dependent, less developed nations. In the United States, high commodity prices have pushed farm income to successive annual records and have sharply lowered government farm program costs, but they have also stoked the flames of food price inflation and have raised costs for livestock producers and food processors. In addition, high, unexpectedly volatile prices have increased the risk and costs associated with grain merchandising. In particular, they have dramatically increased the cost of routine hedging activities (i.e., pricing commodities for purchase, delivery, or use at some future date) at commodity futures exchanges and, as a result, have diminished "forward contracting" opportunities for grain and oilseed producers who are eager to take advantage of record high market prices.
For some crops (particularly for wheat and rice), the price increases are likely to be relatively short-term in nature and are due to weather-related crop shortfalls in major producer and consumer countries, a weak U.S. dollar that has helped spark large increases in U.S. exports, a bidding war among major U.S. crops for land in the months leading up to spring planting in 2008, and the often perverse price effects resulting from international policy responses by several major exporting and importing nations to protect their domestic markets. Assuming a return to normal weather, these factors will likely self-correct within two growing seasons as global supplies are replenished and prices moderate. For coarse grains (corn, sorghum, barley, oats, and rye), oilseeds, and oilseed products (e.g., vegetable oil and meal), the price increases have also been due to strong, sustained demand deriving from two sources: robust income growth in developing countries (e.g., China and India), which has contributed to increased demand for meat products and the feed grains needed to produce that meat; and growing agricultural feedstock demand to meet large increases in government biofuel-usage mandates or goals in the United States, the European Union, and other countries.
Market analysts, including the United Nations' Food and Agricultural Organization (FAO), are predicting record global grain and oilseed production in 2008 in response to the high market prices. However, given the overall strength in demand growth, most market analysts predict that when commodity supplies eventually recover and prices moderate from current high levels, the new equilibrium prices will be significantly higher than has traditionally been observed during periods of market balance.
This report examines the causes, consequences, and outlook for prices of the major U.S. program crops, and provides references for more detailed information. It will be updated as events warrant.