Food prices, ethanol production, and credit issues have dominated the headlines in recent months. This series of articles examines the question of whether these factors mark a new era of price instability for agriculture and the implications of such a transition for farmers, agribusiness and food companies, and consumers.

The history of corn, soybean, and wheat prices is analyzed for clues as to the likely level and variability of prices in the future. We use the shifts observed during 1973-75 as a template for the currently emerging era. Long–run average prices (nominal) are projected to be about $4.60 for corn, $5.80 for wheat, and $10.58 for soybeans. The projected wide range in prices presents a variety of challenges to market participants.

With the enactment of the Energy Policy Act of 2005, a strong relationship between corn and oil emerged. Those agricultural products related to corn were also affected. Because the livestock sector did not experience price increases of similar magnitude and faced higher feed costs, producers’ profit margins were negatively affected.

The food price crisis had an important effect on the poorest. Several explanations both demand and supply driven had been identified. In addition there is substantial evidence that the crisis was made worse by excess price surges caused by speculation and possible hoarding with adverse consequences for the poor. Appropriate global institutional arrangements for preventing these unreasonable or unwanted price fluctuations are missing.

The economic crisis of 2008-09 will have a major impact on U.S. agriculture. The drop in incomes around the world because of the evolving global recession combined with the short–term appreciation of the dollar will significantly reduce agricultural exports and prices. The crisis’ long–run effect will depend mainly on whether the dollar continues to rise in value or falls.

Alternative scenarios to base assumptions were developed to identify the susceptibility of production agriculture to the United States and worldwide macroeconomic response to the current world recession. Alternative one, the stronger dollar scenario, highlights how important exports are to the farmer’s bottom line. Alternative two, plots a course in which the U.S. dollar remains low relative to other currencies and extends the type of growth achieved prior to the recession, but at the cost of higher inflation.

The financial crisis is having a profound impact on our economy. Financial markets in agriculture have not been immune to the crisis. Financial institutions lending to the agricultural sector will have to compete for scarce capital in a market of tighter liquidity.

It is important to consider farm household risk exposure from a broad portfolio perspective that includes variability in both annual income and asset values. An unreasonably narrow perception of risk has contributed to the existence of federal policies that are redundant, too focused on single–year income streams, too commodity–specific, and too likely to create significant resource misallocation.