The Role of Biofuels and Other Factors in Increasing Farm and Food Prices – A Review of Recent Developments with a Focus on Feed Grain Markets and Market Prospects. Keith Collins, Ph.D. June 23, 2008.

Executive Summary
• “Farm-level prices have increased sharply over the past two years. The index of prices received by farmers for all farm products increased by 34 percent over the period January 2006 through May 2008. The index of prices received for feed grains and hay, led by surging corn prices, increased by 144 percent over that period. High prices for farm products have led to significant retail food price increases, rising 4.9 percent during 2007, the highest increase in 17 years.
  Factors Behind the Increases. Many factors are contributing to higher farm-level and retail food prices. They include: (1) strong global economic growth, thereby increasing demand for U.S. commodities; (2) the declining value of the dollar, although recent real trade-weighted exchange rates suggest that the weakened dollar has been less important to corn and other key crops; (3) reduced supplies of some crops, such as wheat and rice, due to adverse global weather; (4) higher energy prices that have increased farm production costs and food processing and distribution costs; (5) changing foreign agricultural policies that insulate countries from higher global prices; (6) increased investment by index funds and other managed investments that probably have increased price volatility but are not likely to have sustained effects; and (7) biofuels, particularly corn-based ethanol. Biofuels have been a major factor for feed grain and livestock markets, with corn used in ethanol rising from 2.1 billion bushels in 2006/07 to an expected 4.0 billion in 2008/09. This increase in corn for ethanol production exceeds the entire expected increase in total corn demand over this period.”