From China to America, monumental forces are driving global demand for food, feed and renewable fuel. Faced with a worldwide credit crunch, demand will probably take a breather, but the long-term trends are still strong.

New Era For Crop Prices?
Here are two perspectives on how a demand-driven agriculture changes the long-term outlook on commodity markets

The debate continues about whether commodities have reached a new demand-driven price era or have simply spiked and will fall from historic highs back to previous price levels. Two analysts share their perspectives on the market and how America's farmers may need to adjust.

Lester Brown's long career includes serving in USDA's Foreign Agricultural Service, adviser to Secretary of Agriculture Orville Freeman and administrator of the International Agricultural Development Service. Brown left government in 1969 to help establish the Overseas Development Council.

In 1974 he founded the Worldwatch Institute, the first devoted to global environmental issues. In 2001 he started the Earth Policy Institute to focus on achieving an environmentally sustainable economy.

Karol Aure-Flynn covers U.S. grains and oilseed for Rabobank's Food & Agribusiness Research and Advisory. Raised on a California table grape farm, Aure-Flynn has experience as a produce broker, farm manager, entrepreneur and consultant.

Will commodity prices fall to traditional levels, or have we reached a new plateau?

Brown: Commodity prices are in a new era. That is not to say that prices won't fluctuate, but the difference is we now have capacity to convert grain into fuel. From 1990 to 2005, we saw annual average growth of 21 million metric tons in world grain demand. The last two years, growth in world demand for grain has been an average of 40 million. The difference is ethanol.

Aure-Flynn: Many factors have contributed to the commodity boom. Explosive demand is the major force, particularly in corn and soybeans. Income, population and urban growth ensure continued growth from emerging economies.

Even with some slowing in global economies projected, these factors will provide sustained support for prices. We feel that since these fundamental issues are the basis for high prices, price levels have shifted. We don't expect a fallback to traditional levels.

It is also important to recognize that fuel is now part of the demand equation. Prices are linked to energy costs and important traditional macroeconomic factors, such as relative currency valuation (particularly in this tough period for the U.S. dollar). Globalization and trade policy continue to play a role in the movement and pricing of grain.

What global factors are the major long-term market movers and why?

Brown: Looking ahead there are three sources of greater demand: population growth, rising world incomes and ethanol. We are adding some 70 million people to the world each year, and that will eventually put us in trouble because there will be fewer resources available per person. About 5 billion people are trying to move up the food chain. As incomes rise, people will demand more, better food.

Consider the difference right now between low and high consumption. A person in India today consumes just under 200 kilograms of grain per year. Americans, on average, consume 800 kilograms per year. Most of that 800 kilograms is not consumed as grain, but as meat, milk and eggs.

Our refrigerators are stuffed with corn. Then you add in ethanol. Fuel ethanol was around before 1978, but it was not on our radar screen until after Hurricane Katrina. Gas prices jumped to $3 per gallon and spurred the investment in ethanol. We saw massive investment in ethanol plants in 2006 and 2007.

Aure-Flynn: Along with the growth in biofuels, the long-term market mover remains increased demand for traditional food, feed and fiber. From 2005 to 2015, global demand for grains and meat is expected to increase by 14% and 25%, respectively.

How can farmers and food producers best adapt to this shift in prices and demand? 

Brown: World crop production area is the same now as it was 30 years ago. In the 1950s we projected tremendous world population growth, but saw no new land to bring into production. We instead began to focus on productivity on existing acres through plant breeding, farm credit and providing price support for farmers to give them confidence to invest in their land. We have tripled grain production per acre since then.

To accommodate continued growth, producers must focus on more efficient water use and stabilizing our climate.

Aure-Flynn: Food producers will continue to do what they do best—innovate to make more with less. In this period of tremendous production response to booming demand, control and efficient utilization of precious agricultural resources will be at the forefront of both short- and long-term decision-making.

• Join the discussion. Join in a roundtable with DTN and The Progressive Farmer editors on the impact of new markets and demand. Mark your calendar for Jan. 15 and watch our webinar page at about.dtnpf.com/webinars for details on the event.