Internationally, the impact is more immediate. Higher U.S. corn prices are quickly transmitted around the world and have a serious impact on consumers in developing countries where corn/grain is a major component of the diets of the poor. We all remember what happened in 2008 and the impact extremely high grain prices had on the number of hungry people in the world.

Ethanol production was expected to account for 5 billion bushels of U.S. corn production. Higher prices will inevitably lead to reduced ethanol production. If the prices go high enough some low-margin ethanol plants will be taken offline.

Just as higher prices are felt by consumers around the world, they are also felt by corn producers around the world. With higher prices, we would see an increased number of acres put into production worldwide, perhaps about the time U.S. yields recover.

We have seen numbers that would suggest that crop revenue insurance payments could go through the roof. At this point, we would hesitate to offer an estimate on our own, but Gary Schnitkey at the University of Illinois (http://www.farmdocdaily.illinois.edu/2012/07/crop_insurance_in_2012.html) estimates that a year like 1988—105 bushels per acre—with a harvest price of $7.40 could result in a $318 per acre insurance payment.

As of July 9, 2012, 553,000 Federal Crop Insurance policies had been issued to farmers. At this time in 2009, the number was nearly double at 1.17 million policies. Neither the high crop prices nor the high insurance payments are going to benefit farmers who don’t have crop revenue insurance but experience a serious decline in yield.

At this point in time, we are just holding our breath as we await timely rains, if it is not already too late for that.

Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). Harwood D. Schaffer is a Research Assistant Professor at APAC. (865) 974-7407; Fax: (865) 974-7298; dray@utk.edu  and  hdschaffer@utk.edu;  http://www.agpolicy.org.