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OSU
Extension, Darke County
How Are Farm Commodity Prices Set
By Sam Custer
The
price of agricultural commodities, such as
corn and soybeans, are set in open market trading, where buyers and
sellers
come together at exchanges such as the Chicago Board of Trade. This
firm
brokers large quantities of certain products through futures contracts.
Corn,
for example, is sold through 5,000 bushel
contracts. The contract stipulates that the corn will be delivered to
the
contract holder on a specified date in the future. Commodity buyers bid
on
these contracts to ensure they have a reliable supply of corn at a
predictable
price. Speculators may also bid in hopes that the value of the corn
increases
before the contract comes due. The buyers consider factors such as the
weather,
the number of acres planted and the anticipated demand for corn as they
bid.
Local
grain elevators use these bids as a guide
to determine what price they will pay area farmers for their crop.
Farmers can
sell at the price offered by the elevator, or store the crop in hopes
that the
price will improve. Farmers can also sell their crop through a futures
contract, which can be risky as they are often selling a crop which
hasn’t yet
been harvested. There is a complicated set of marketing tools farmers
can use
to manage this risk, but in the end, they do not get to set the price
of their
crop.
Will
the high price of corn and soybeans as a
result of last year’s drought affect the price of your groceries? Among the many factors
that influence food
prices, weather is one. But the price of food also includes packaging,
advertising, processing, labor, transportation and other costs. Corn,
for
example, makes up just a few cents of the final price of corn flakes.
So if
corn prices doubled, your cereal might go up by about nickel.
In
addition, commodity prices are guided by
global supply and demand. If a crop is grown over a wide geographical
area, it
is unlikely that local weather will disrupt overall production. On the
other
hand, a significant or extended weather event that limits the
availability a
crop would eventually be reflected in the cost of food. Typically, it
is
individual farmers who feel the greatest impact of adverse weather.
For
more information, visit the Darke County
OSU Extension web site at www.darke.osu.edu,
the OSU Extension Darke County Facebook page or contact Sam
Custer, at 937.548.5215.
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