WEST LAFAYETTE, Ind. -- A trio of economic factors that sent commodity prices soaring in mid-2008 has since reversed course and is pushing prices lower, according to an updated report by three Purdue University agricultural economists.
"The three major drivers that we identified last year were trends in global production and consumption, the value of the dollar, and biofuels," said Wally Tyner, who, along with Philip Abbott and Chris Hurt, released "What's Driving Food Prices?" this past July. "One of the key questions we asked in doing this new study was, 'Are these same three that drove prices up the ladder now driving prices down the ladder?' The answer is yes."
Tyner and Hurt, who on March 11 presented the update in a Farm Foundation Forum at the National Press Club in Washington, D.C., found that a stronger American dollar, falling ethanol demand and rising grain stocks combined to send corn, soybean, wheat and rice prices cascading in late 2008. Behind those dramatic changes is the global financial crisis, the economists said.
"The dollar had lost about 67 percent of its value through July 2008, and since July it has gained 22 percent of that value back," Tyner said. "Since July, the expectations on supply and demand are that our stocks are going to be better than we thought since 2008 was a good production year and world demand has dropped. So supplies are not nearly as short now in terms of stocks-to-use ratios as they were before.
"And then the demand for biofuels is not near what we thought it was going to be. The price of oil comes down, the price of gas comes down and demand for ethanol goes down. That means there's not as much corn needed to make ethanol, and, therefore, not near as much pressure on the price."
Given time, consumers are likely to see lower prices for some food items, Tyner said.
Hurt said, "The future for agriculture is also closely tied to the depth and duration of the current recession, as well as to the magnitude of the recovery in coming years. Other important factors will be how governments and consumers respond to the downturn and how biofuels policy evolves in coming years."
To read the July 2008 "What's Driving Food Prices?" report and update, go to the Farm Foundation Web site at http://www.farmfoundation.org.
-30-
http://news.uns.purdue.edu/x/2009a/090311TynerPrices.html
Contacts:
Steve Leer, (765) 494-8415, sleer@purdue.edu
Wally Tyner, (765) 494-0199, wtyner@purdue.edu
Chris Hurt, (765) 494-4273, hurtc@purdue.edu
Philip Abbott, (765) 494-4274, abbottpc@purdue.edu
Beth Forbes, (765) 494-2722, forbes@purdue.edu?
