Study: Ethanol supporting rise in grain prices

CHAMPAIGN – A study released Monday by two University of Illinois farm economists shows that grain prices are likely to remain high as a result of ethanol, marking the first sustained increase in corn and soybean prices in Illinois in more than 30 years.

Darrel Good, a professor of agriculture and consumer economics, said that the use of corn in ethanol will likely mean Illinois corn will likely average $4.60 a bushel. That's nearly twice the average price of $2.42 a bushel paid between 1973 and 2006.

Good said that weather or other variables to the market could cause corn prices to climb as high as $6.70 a bushel or as low as $3 a bushel. "The extreme low prices in terms of the new era would have been considered awfully good prices in the old era," Good said.

Scott Irwin, a professor of agriculture and consumer economics, said soybean prices are likely to average $11.70 a bushel, a sharp climb from the average price of $6.15 a bushel paid between 1973 and 2006. Irwin said variables could cause the price to fluctuate between $4.80 and $19 a bushel.

"This is our first effort to try to provide some perspective on what might be high and what might be low, with all of the caveats about how difficult that is to do," Irwin said in a written statement.

Good said this is the third time Illinois farmers have experienced sustained grain price hikes.

The first hike came following World War II, when the government lifted price controls. The second came following large grain purchases by the Soviet Union, rapid inflation and rising energy prices in 1973.

Irwin said the new level of prices could last for two decades or longer as gas prices remain high, with a major risk being technological breakthroughs that might dramatically reduce the consumption of oil.

Even if biofuel producers changed from using corn to miscanthus or switchgrass, Good said grain prices would likely remain high because land used for miscanthus or switchgrass would limit available land for corn or soybeans.

"We would have to steal land away from corn to grow a different energy-related crop," Good said.

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