Cooperative Extension University of Wisconsin-Extension

For Faculty & Staff

Issues Related to the Current Conditions of World Food and Energy Markets: Talking Points

By: Bruce L. Jones, UW-Madison professor of Agricultural and Applied Economics and UW-Extension Farm Management specialist, 608-265-8508, bljones1@wisc.edu, June 12, 2008

  • Over the 1980-2005 period, world food commodity prices trended downward while per capita consumption in the world rose along with the population of the world.  These things occurred because grain and oilseed production in the world grew.

  • The currently tight supplies of wheat and feed grains are largely the result of adverse growing conditions that suppressed yields in: Northern Europe, Ukraine, Canada, Australia, and parts of the U.S.

  • Corn, soybean, and gasoline prices are currently high, but in real terms, they were all much higher in the mid 1970s.  So the problem of high feed and energy prices has been dealt with before.  Given this, we should expect it can be effectively dealt with again.

  • Declines in the value of the U.S. dollar are elevating petroleum prices (greater cost to import) and the prices of grain and oil seed (greater export demand) in the U.S.  These upward pressures on fuel and food prices should diminish as the value of the U.S. dollar rises. What is unclear is how long it will take for the value of the U.S. dollar to adjust.

  • The use of corn to produce ethanol has no doubt helped elevate the price of corn.  The prospects for further increases in the demand for corn for ethanol production are low because in the U.S. we are nearing the point where we will be able to produce a quantity of ethanol equal to about 10 percent of the U.S.’ annual gasoline consumption.

  • From an economics perspective, the solution to “high” prices is high prices because it brings about the adjustments in supply (increases in production) and demand (reductions in consumption, including conservation) that reduce prices. Markets work, but they do not always work as quickly as we would like. The key thing to remember is that we sometimes need to be patient when we are dealing with market adjustments.