October 5, 2017
With harvest results so far confirming large corn and soybean crops which will result in large carryovers again this marketing year, is it possible that we’re going to be looking at price doldrums similar to the late 1990s and early 2000 era?
During that timeframe, for approximately nine years from 1997 to 2006, corn fluctuated roughly around $1.25. Most of the years were in a 75-cent price range from a $1.75 low to $2.50 on the high side. In the case of soybeans, the trading range from 1998 to 2003 was from a low of $4.20 to a high of $6.20.
Don’t be startled by the idea that prices could go that low — they won’t. But is it possible that corn could be locked into the range of $3.00 to $4.25 from now until approximately 2023?
The market has been in a tight trading range since early 2014; adding nine years on to that would take us to about 2023. During the same timeframe, soybean futures in the nearby contract have been in a range from about $8.50 to $12.00.
Current large supplies
We believe the odds of the lows being taken out, or even tested, are remote. But the question is: Could the current large supplies keep a lid on any kind of advances above the highs stated above?
With supplies as large as they are for both corn and soybeans, we have to ask ourselves where will the new demand come from? Granted the world is eating more protein. Expansion in pork and poultry requires more feed, and pork and poultry exports are reasonably good. But where will “the next ethanol” come from? Could it be a new mandate for all gasoline to require 15 percent ethanol? That would certainly do the trick for higher prices. But politically that is not highly likely.
I don’t know what the new demand for corn and soybeans is going to come from. Based on current price action, no one else does either. But history is a good indicator that if grain prices get cheap long enough, someone will find new uses for the product. Something positive will happen, but right now it’s just hard for any of us to know what that is going to be.
Another possibility, of course, is a production disaster somewhere else in the world. This is one possibility that none of us “hope” for, but clearly if South America was to have a sharp reduction in soybean yields because of either weather or disease, that would help spark a major rally in the market.
Corn is now being raised in so many areas of the world that weren’t raising corn 10 years ago that it would be hard to have a production disaster large enough to improve prices unless it was here in the U.S. None of us want that either.
Long, cold winter
So a long, cold winter is probably what we’re looking at right now. Not a lot of substantial price movement. More seminars and meetings on how to improve yields so that we grow more at a lower price. We have a strong tendency to keep turning on the spigot to produce more when that is not what we really need. But in order to keep revenue per acre strong, producers all need to have high yields.
This year, for example, is likely going to be more profitable for at least 70 percent of farmers than they thought possible four months ago. Take soybean and corn yields up 20 percent per acre and even at these low price levels, incomes improve substantially. We are just going to have to learn to be profitable with higher yields and lower prices, while doing what we can to control input prices.
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