LEXINGTON, Ky. — For farmers, it may have been a tough year for growing, but grains enjoyed high prices during 2012. Now that the New Year has arrived and farmers contemplate what they will plant in the spring, the big question is: Will those high prices remain?

Brian Luftman, a former commodities trader and president/founder of American Farm Investors, said he thinks that will be the case.

“The 2012 drought sent all grain futures to near-record highs. As seen with gasoline and energy prices, when natural disasters create rapid increase in prices, the higher levels tend to become the new default price,” he said. “The 2013 grain future prices are currently trading 10 percent higher than the year prior.”

He added the increase may be attributed to carried-over shortages from the dismal corn crop of 2012; however, annual increases of 10 percent or more in grain prices have been a trend since 2005.

“The world population is growing, high-protein diets are increasing worldwide, renewable energy sources (ethanol) are becoming more popular and, most importantly, the global money supply continues to grow,” Luftman said.

“All of these factors lead me to believe grain prices will remain strong. Eight-dollar corn prices from last summer are not the new normal, but if current market conditions continue, it won’t be long before $8 is the new default corn price.”

That may be good news to those planting corn, but livestock producers are having an increasingly difficult time keeping inputs down because of high feed costs. With the drought of 2012 taking so much of the crop, cattle producers across the country were hoping to get a little help from the government in the form of a waiver of the Renewable Fuel Standard (RFS) governing the use of corn for ethanol.

That waiver was not granted by the U.S. Environmental Protection Agency (EPA), much to the disappointment of those in the cattle industry. National Cattlemen’s Beef Assoc. (NCBA) President J.D. Alexander, a feeder from Pilger, Neb., said this move demonstrates a flawed RFS policy.

“In light of the most widespread drought to face the country in more than 50 years, the refusal to grant this waiver is a blatant example of the flawed policy of the RFS,” he said. “The artificial support for corn ethanol provided for by the RFS is only making the situation worse for cattlemen and -women by driving up feed costs.”

According to information from the NCBA, from December 2007-August 2012, the cattle feeding sector of the beef industry lost a record $4 billion in equity due to high feed costs and economic factors that have negatively affected beef demand.

In any given quarter, the use of corn for ethanol ranges from one-third of the crop to more than half, according to statistical information from the USDA’s Economic Research Service (ERS). 

The NCBA quoted an ERS report noting 2011 feed costs for livestock, poultry and dairy reached a record high of $54.6 billion, an increase of more than $9 billion over 2010 costs.

Alexander said these costs are borne by cattle producers nationwide. “Our message to EPA and Administrator (Lisa) Jackson is, how bad does it have to get for livestock producers before relief is brought to rural America? Cattlemen and -women are only asking for a level playing field,” he said.

“With EPA’s refusal to grant a waiver when faced with these conditions, it is clear the RFS is not working as Congress intended.”

Corn growers have a different take on the corn-for-fuel quandary. According to the National Corn Growers Assoc. (NCGA), twice as much corn is used for livestock feed than for ethanol production. Last summer, at the height of the drought, the organization released a statement just as the debate over ethanol waivers began again.

The statement read in part: “When it comes to the Renewable Fuel Standard for ethanol and other biofuels, now is not the time for changes. It’s working. The RFS is revitalizing rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline. Making changes to the RFS now would only ensure that consumers suffer due to significantly higher fuel prices.

“Given the challenges of the drought and suffering of all farmers, now more than ever, U.S. agriculture needs to pull together. NCGA will continue to help lead the way in trying to unite, rather than divide, American agriculture.”

That debate is not likely to go away anytime soon – much like the drought of 2012, which is threatening to become the drought of 2013. The U.S. Drought Monitor still shows much of the country suffering from extreme or exceptional drought conditions.

Wheat growers are now facing the dry weather, but some relief may have come with the huge winter storm system that just moved through the nation’s heartland.

First and foremost, farmers are waiting to get a farm bill but after that, the discussion of commodity prices is likely to top their list. As stocks remain tight, many ag economists are projecting high prices to stick around for awhile.