Many companies and industries rely on grains for the production of their goods, making grain prices important factors in various markets. Grain prices themselves are subject to several forces. Consumer demand for grains and grain-based products can significantly impact the price and availability of grains. As an agricultural crop, the supply of grains can be affected by weather conditions, whether natural disasters or gradual changes in climate. Also, new uses for grains can put a strain on existing supply and demand balances. One such example is the rising demand for corn-based ethanol, a potentially viable biofuel, which is putting pressure on the prices of both corn and other grains.
|Grain||2005 Production, in million metric tons||Common Uses|
|Rice||700||Various food products|
|Maize (Corn)||692||Livestock feed, various food products, ethanol (a potential source of renewable energy)|
|Wheat||626||Various food products|
|Barley||138||Livestock feed, malting for alcoholic beverages, health foods|
|Sorghums||59||Livestock feed, various food products, alcoholic beverages|
|Millets||30||Bird feed, various food products, alcoholic beverages|
|Oats||24||Various food products, animal feed, topical skin products|
Increased ConsumptionConsumption of grains, especially wheat, is at an all-time high. The production of grains has increased as well, though not enough to keep up with demand. For the first time in recent history, world wheat production is less than wheat consumption, which is putting upward pressure on prices. Developing countries are particularly strong drivers of this trend. As incomes increase in countries such as China and India, people are consuming more grains and products that use grains than before, resulting in higher grains prices.
Impact of Weather
As an agricultural product, grains require certain growing conditions to fully develop. Changes in weather can greatly impact the yield of grains crops and, as such, grains prices. Grains are also grown across the world, exposing different crops to a variety of weather risks. For example, if a monsoon were to hit South or Southeast Asia, the world's rice supply would be significantly impacted, but barley crops would be largely unaffected. Currently, wheat prices have increased substantially over 2006 price levels due to a combination of freezing temperatures and flooding in Kansas and drought-like conditions in Eastern Europe, a large wheat-producing region.
Demand for Ethanol
Increasing demand for corn-based ethanol is driving up corn prices, which are up 70% from 2006. The International Grains Council estimates that over 86 million tons of corn will be used in ethanol production in 2007, an increase of 32 million tons over 2006. The demand for ethanol can also affect other grains' prices. As corn becomes more valuable, farmers are more likely to switch to corn production, which can decrease the supply of other grains. The demand for ethanol, and the subsequent increase in grains prices, is being driven primarily by the U.S., where rising oil prices and U.S. energy regulations are spurring the development and implementation of biofuels such as ethanol.