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Drop in grain prices will mean lower grocery bills, Purdue economist predicts

Updated: December 17, 2013 6:11AM



SCHERERVILLE — Retreating grain prices will translate into relief at the grocery store for consumers, but it will take time — as much as two years in one category — before the full effects are realized.

Scott Hurt, professor of agricultural economics at Purdue University in West Lafayette, on Friday said agriculture has been in a boom period for the past couple years fueled by increased demand for ethanol, food shortages overseas and serious drought in 2012, but those issues are moderating. Hurt was on a panel of economic experts at the 37th annual Indiana University Kelley School of Business Economic Forecast hosted by the Lake County Advancement Committee.

“What goes up must come down,” Hurt said. And so it has. Corn has dropped from about $8 a bushel in August to about $4 a bushel. This year Indiana had a record crop for corn at 14 billion bushels, about 10 percent of all corn produced in the nation. Soybeans also did well, though not a record, with yields 40 percent above average.

Demand for biofuel has largely flattened nationally and abroad, he said. The push for more biofuel and higher quantities of ethanol blended in gasoline that began around 2007 has backed off with nations like China moving away from using food for fuel.

Even in the United States, the Environmental Protection Agency is backing off tougher mandates for the use of ethanol-blended gasoline because producers are unable to manufacture enough ethanol. The industry has also been unwilling to embrace the new quotas due to liability concerns over potential damage from the blend to older cars and a reluctance to invest in gasoline pumps to carry the new blend.

“We are at a point where the supply chain has caught up with the demand (for corn),” Hurt said.

Lower grain prices translate into lower feed prices that ultimately trickle down to consumer commodities like chicken, turkey, pork and beef.

“Eventually the food consumers are going to be the big beneficiaries in the long run,” Hurt said. But it will take time.

Since 2007, meat consumption per capita is down 10 percent from about 220 pounds to 200 pounds. While some of that decline is likely in part due to changing attitudes about what constitutes healthy eating, the largest reason for the decline in consumption is cost.

Consumers can expect to see more chicken in the grocery store late this year and into the first quarter of 2014 since it has the shortest production cycle. Turkey will be the next protein to increase in production and drop in price, which should begin in the second quarter of 2014.

The pork industry is expanding after the pullback due to feed prices, drought and an outbreak of porcine epidemic diarrhea virus, according to industry website The Pig Site.

Beef will take much longer to recover because it has a longer production cycle.

“Beef is in short supply. You can expect beef prices to be higher in 2014 and even higher in 2015,” Hurt said.

Relief in the beef market will not be felt until 2016.



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