Since late 2007, U.S. and international markets for major grains and oilseeds have experienced a period of tight supplies, strong demand, and high prices not seen since the mid-1990s ( Figures 1 and 2 ). While agricultural commodity prices rose sharply during 2007, they jumped precipitously in early 2008. For example, export prices for the world's two major food crops—wheat and rice, rose by 81% and 21%, respectively, during 2007, but have surged even higher in early 2008. Wheat prices (HRW No. 2, f.o.b., U.S. Gulf ports) rose 44% between November 2007 and March 2008—rising from $334.6 per ton to $481.5—before falling back in April and May. Rice export prices (100% Grade B, f.o.b. Bangkok) have more than doubled since November 2007, rising from $358.3 per ton to $1,020 in late May 2008—an increase of nearly 185%. This report identifies the predominant factors behind the 2007/2008-crop-year market conditions for major agricultural commodities, with a focus on U.S. farm program crops. In addition, it briefly discusses how higher, more volatile commodity prices have impacted farm incomes, government farm programs, hedging activities, the livestock and food processing sectors, food prices, and the international food security situation. It reviews both the near- and longer-term commodity price outlook, and finally, it discusses various viewpoints and policy options that have been suggested as possible responses to the perceived causes and consequences of the unusually high commodity prices. Because supply and demand circumstances vary widely across these crops—particularly in terms of their seasonality, their price elasticity, and the derived nature of their end products—readers are encouraged to review the brief commodity overviews provided in CRS Report RL33204, Price Determination in Agricultural Commodity Markets: A Primer , for background information on the underlying nature of the different commodity markets. While the high market prices have been a boon for producers and owners of agricultural commodities, they represent a drastically worsening food security outlook for low-income households, particularly those in poor, import-dependent countries. A global crisis was signaled when, on March 20, 2008, Josette Sheeran, the executive director of the United Nations' World Food Program (WFP), issued an appeal for $500 million from donor countries to close an immediate gap in the WFP's normal food distribution commitments resulting from rising commodity prices. This was followed on April 14, 2008, by a warning from U.N. Secretary General Ban Ki-moon that a rapidly escalating global food crisis had reached emergency proportions and threatened to wipe out seven years of progress in the fight against poverty. World Bank president Robert B. Zoellick announced that the surge in food prices could push 100 million people living in low-income countries into deeper poverty. That same month the U.N.'s Food and Agricultural Organization (FAO) identified 37 countries in food crisis requiring external assistance—21 of them in Africa. Then, on April 22, 2008, barely a month after her first announcement, executive director Sheeran announced that the WFP's operation funding gap had now risen to $755 million, up from the earlier estimate of $500 million, due to continuing increases in commodity prices since mid-March. In addition to global food security concerns, higher commodity prices have stoked the flames of food price inflation and its potentially deleterious effect on lower-income households while raising costs for livestock feeders and food processors. Because the rising prices have been associated with unexpectedly large price volatility, they also have increased the risk and costs of grain merchandising all along the marketing chain. Finally, the high, volatile commodity prices have dramatically increased the cost of routine hedging activities (i.e., pricing commodities for purchase, delivery, or use at some future date) at commodity futures exchanges and thereby diminished "forward contracting" opportunities for grain and oilseed producers who are eager to take advantage of record high market prices. The specific circumstances leading to high market prices—e.g., weather-related supply shortfalls, unexpected surges in demand, market-distorting government policies—vary in important ways for each of the major U.S. program crops. For wheat, a combination of international weather-related crop failures over the past two years that has resulted in historically low U.S. and global stock levels is the primary impetus behind high prices. Government policies by several key foreign producers to limit exports in favor of domestic markets also have contributed to higher prices. For coarse grains and oilseeds, a combination of growing demand bolstered by rapid income growth in developing markets and government biofuels policies are the key drivers. For rice, government policies by several major rice exporting countries since late 2007 to limit exports followed by panic buying on the part of several import-dependent rice buyers, most notably the Philippines, are the primary catalysts. For cotton, where global supplies remain relatively abundant, the general "bull market" mentality that currently dominates global markets for nearly all commodities has likely been a major contributor to what are otherwise unusually high prices given cotton's current supply and demand balance. Of course, no single event or circumstance fully explains high prices for any single commodity. Global economic growth, in general, reinforces demand for all agricultural commodities. Lack of sustained investment in the agricultural sector diminishes long-term productivity potential, dampens producer incentives, and contributes to the slow erosion of food supply availability. High prices for one crop spill over into markets for other crops that compete for the same agricultural land. A ban on rice or wheat exports by one country ripples through all commodity markets that compete for the consumer's food budget. And, as a backdrop, record oil prices have raised costs all along the various commodity marketing chains from field to kitchen table. The last period of similarly high commodity prices occurred in the 1995-1996 period, when several years of government stock reductions were followed by an unusual combination of global supply-reducing weather events and strong international demand. However, current commodity market conditions for major U.S. farm program crops—which have occurred simultaneously with dramatic price rises in coffee, cocoa, and tea markets, as well as in non-agricultural markets (e.g, petroleum, gold, silver, platinum, copper, aluminum, iron ore, and coal)—appear more reminiscent of the 1972-1974 period, when increasing inflation, gasoline shortages, and fears of widespread resource depletion appeared to place constraints on economic growth and food production. In the current farm commodity bull market, global stocks-relative-to-use ratios for vegetable oils and several grain crops are projected to reach historic lows by mid-2008 ( Table 1 ). As a result, commodity prices in both cash and futures markets have approached or surpassed historic highs ( Tables 2 and 3 ) while exhibiting heightened sensitivity to crop prospects across the globe this year. This sensitivity has translated into record price volatility in agricultural markets. The full consequences of historically high, but unpredictably volatile, commodity prices are only beginning to emerge, but clearly they have raised the cost of doing business and such costs have not been spread evenly among market participants. On the positive side, high commodity prices have contributed to record U.S. farm income in 2007 and the outlook for even higher returns in 2008, while dramatically reducing government outlays for price-contingent commodity programs. On the other hand, the outlook for sustained high commodity prices has contributed to the concerns of the U.S. livestock sector and food processors about the continued timely availability of grain and oilseed supplies, and the impact such high input prices have had on their profitability. Historic high price levels and volatility have sharply increased the costs of routine hedging activities of commercial elevators, grain merchandisers, and food processors. In addition, as commodity prices have risen in tandem with food prices, consumers from low-income households and import-dependent nations have expressed concerns, often in the form of riots, about food price inflation, domestic and international food aid, and the ability of agricultural producers to meet projections for continued strong demand growth. U.S. and global stocks for several major U.S. program commodities are expected to be at or near historically low levels—particularly when measured as a share of total usage—prior to the next harvest this coming summer and fall of 2008 ( Table 1 and Figures 3-8 ). For example, global end-of-year stocks for coarse grains and wheat are projected to drop by mid-2008 to the lowest levels since 1977, while ending stocks of total grains (i.e., rice, wheat, and coarse grains combined) fall to the lowest level since 1981. More importantly, their respective stocks-to-use ratios are all projected to reach record lows. Similarly, the stocks-to-use ratios for global corn and vegetable oils are projected to be the tightest since the early 1970s. Global rice stocks, as well as the stocks-to-use ratio, are projected up slightly from the previous year at 77.2 million tons and 18.2% in 2007/2008. However, the previous year's stocks-to-use ratio of 18.1% was the lowest since 1976. Current rice stock levels represent a halving of available supplies from the year 2000, when global ending stocks peaked at 147.1 million tons. A certain amount of stocks at the end of the marketing year are necessary to provide a continuous flow of grain to processors and exporters before the new crop is harvested—such stocks are referred to as pipeline supplies. Although there is no hard and fast rule on what volume of stocks represents desirable pipeline levels for the major grain and oilseed crops, whenever stocks approach historically low levels market analysts speculate about what pipeline-stock levels might be.