With corn prices now at record high values in “current” dollars (versus inflation-corrected “real” dollars), the question has been asked, how have corn prices changed relative to those of petroleum products? And what is the long-term trend? Is ethanol made from corn likely to become more or less expensive, relative to petroleum products such as gasoline in the years ahead?

The following two graphs show the long-term trends for Canada.

The first graph shows the average price, in dollars per bushel (bu) received by Ontario farmers for corn harvested in years 1956 through 1994. Also shown is an index of average refinery product prices, obtained from Statistics Canada (Cansim files D692374 and D594001, the latter used for years prior to 1981), and yearly average Canadian consumer price index values (also from Statistics Canada).

The second graph shows the average corn prices and the petroleum price index values, adjusted to 1994 values of the consumer price index.

All currency values are in Canadian dollars. Corn prices shown in the graphs are multiplied by 10, for scaling purposes.

The graphs show:

1. Average corn and petroleum product prices moved in parallel until about 1974. However, petroleum prices jumped dramatically thereafter, while corn prices did not. The real price of corn has trended downwards since 1974. This is not true for petroleum prices. The results of statistical analyses show that the average corn price has declined at an average annual rate of about 11 cents/bu, since 1956, in 1994 currency. The average petroleum price index (adjusted to 1994 values of the consumer price index) has increased at an average annual rate of 1.45. Both regression coefficients are significant at the 99% probability level.
2. Oil prices have been more volatile than corn prices over the past 40 years.
3. Based on patterns of the past 40 years, it can be expected that the real price of corn (and of ethanol made from corn) will trend lower in years ahead. The long term trend is for the real price of oil, while very volatile, to increase.

The graphs do not show values for 1995 or 1996 when average corn prices will be higher than they have been for several years. Expected average Ontario corn prices for crops harvested in 1995 and 1996 are in the range of $4.50 to $5 per bushel. However, these prices, are only about half of those experienced in the mid 1970s, in inflation-adjusted currency. The inclusion of data for 1995 and 1996, when available, is not expected to alter the pattern shown in the following graphs.