Written by GrainBridge
With a depressed corn market the last couple of years, the question of when prices will come back from their current lows is commonly heard throughout the agriculture industry. The University of Illinois researched historical price movement to see if there is any consistency in price movement from previous years that could provide some insight. The research looks at prices in the time frame from January of 1973 – April 2017, which contains two long-run pricing eras based on large changes in the industry that impacted the corn market substantially. We are currently in the era that started in December of 2006 with the increased demand from ethanol production. The moving average price for this period is in the mid $4.00 range. Judging by price movement from 1973 – 2006, when corn prices are above or below the average for the era, prices have a tendency to move back to the average. However, the length of time prices remain below or above the average price before turning back the other direction is inconsistent.
Currently, the December 2018 corn contract is trading at $3.61. Supported by the research, there is optimism corn prices will move higher back to and above the low to mid $4.00 equilibrium price. However, we can’t predict when this shift will occur by looking at trends in historic data. A few of the factors driving the market currently include trade uncertainty, weather, the size of the U.S. crop to be harvested, and world supply and demand. One factor that may point to some optimism for prices next year is the fact that the U.S. has had four years of record crops in a row with another likely again this year. The odds of having a correction year soon are good. If the U.S. does have lower production in 2019 and demand stays strong, prices could absolutely push higher. However, there are speculations that more corn acres will be planted next year. With so many factors impacting the market, it makes it very difficult to predict when the market will move from the levels we are at today. So the question is…
While there is some optimism that these market prices won’t last forever, but no certainty of when prices will rise, what can I do today?
1. Consider making firm offers, especially with how quickly the market reacts to headlines. Consider the trade discussions coming up. Some time at the end of August, mid-level negotiators from China and the U.S. plan to meet to discuss trade relations. Then, the Presidents of both countries are slated to meet in November for more discussion. On days with big headlines, the price will often initially react very quickly, but the major moves don’t always last long. These moves can be hard to catch, which is why offers that automatically execute can help you make sales at higher prices than you will likely be able to get by watching and calling to make a sale. With harvest right around the corner and inevitably less time to focus on the markets and headlines, be sure to discuss your options with your marketing advisor.
2. When corn prices do start rising, don’t wait to sell under the assumption it will go even higher. Know your breakeven and profit goal and be disciplined to make sales when the price reaches those levels.
3. Since there is no way to predict when prices will rally back to the low to mid $4.00 range, take a look back at this growing season and consider changes you can make for the 2019/2020 crop to cut costs without sacrificing yield. Don’t bet the farm on prices going higher soon. Instead, be proactive and work smart in the case that prices remain low again next year.
The information conveyed by GrainBridge or its affiliates to the audience is intended to be instructional and is not intended to direct marketing, hedging or pricing strategy or to guaranty or predict future events, including the pricing and pricing movements of commodities and commodity futures contracts.
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