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History shows the futility of grain market price predictionsHistory shows the futility of grain market price predictions

Instead, focus your efforts on consistently limiting downside exposure with a disciplined, non-emotional marketing plan.

Fred Dietz

March 23, 2020

5 Min Read
da-kuk/iStock/Getty Images Plus

Information provided may include opinions of the author and is subject to disclosures found at the end of this document. Examples are used for illustrative purposes and should be considered hypothetical.  There is a risk of loss in trading in futures and options. 

As is often the case, producers, in general, want someone to tell them where the futures markets are headed, whether it’s in corn, soybeans, wheat, cattle, hogs, or milk. But just how realistic are forecasts or price predictions?

For answers, let’s take a look at recent history.


U.S. farmers had just finished harvesting the first record corn crop, 141 bushels-per-acre (bpa), since 1994. Post-harvest export demand far exceeded expectations, and futures prices rallied from $2.40 a bushel at harvest to over $3.30 by the following spring.


I still recall reading the comments from my old DTN screen: “We can’t grow near enough corn to keep up with demand!” A perfect spring and beautiful growing season came to pass that year. The highs of around $3.40 per bushel in December futures were made by April, and final yields topped the previous record by over 13%, which was over 160 bpa. By harvest, there were 35-40 cent Loan Deficiency Payments (LDP’s) as prices fell far below the government-established loan rate.


The growing season wasn’t so nice, as a hot and dry summer plagued much of the Midwest for some time. Comments like “We have a natural floor under the market” were common. However, Hurricane Dennis brought enough rainfall to break the drought. December futures never got higher than $2.73 per bushel before plunging into harvest. And again, 40 cent LDP’s were taken that year.


After looking out the rearview mirror and experiencing several years of crashing prices, many more $2.50-2.60 per bushel sales were made in 2006. This was the year that the ethanol boom really got started.  Futures prices rallied sharply from harvest to over $4.30 by January-February.


This was an absolutely incredible year. Prices rallied from $4 a bushel in October of 2007 to nearly $8 by July of 2008. It looked as if it might go even higher. However, the U.S. economy tanked (sub-prime mortgage crisis) and prices collapsed to 3 by December!


Again, after experiencing several years of falling prices, the accepted thinking seemed to be “Get a lot more aggressive as a forward seller.” There was heavy scale-in selling in 2010, with a large number of $4.00-4.25-4.50 a bushel sales. The U.S. experienced crop problems and, eventually, its first of several sub-trend yields. Corn prices surged to $6 by harvest, before rallying to over $7.50 by the following spring.  


Many producers remember how beautiful the planting season was in 2012. At 97 million corn acres planted, this year held the largest figures since WWII. The summer turned out quite differently though, as the biggest drought since the 1980’s gripped the Midwest. Aggressive forward selling backfired badly this year, with expectations that 50% of one’s crop was being sold in the $5 -6 a bushel range turning into over 100%. Prices surged to nearly $8.50 before settling back to $7.50 by harvest.


With forward selling not panning out for a string of years prior to this one, a record-low amount of corn was sold in 2014. A record national yield of 171 bpa was achieved, and prices crashed from $5 per bu. corn in the spring to $3.20 by harvest.      


Challenging weather was in store this year, as prices surged to near $4.50 a bushel by mid-June. Bullish thoughts were reigning, with the idea that prices would move even higher sometime in July. Very little corn was sold this year, and another record 175 bpa crop was produced, pushing down prices to 3.15 lows by August-September.


Many were enjoying the rally into the spring but were really waiting for the “summer rally.” It never came.  The market high of nearly $4.30 per bushel was in by Memorial Day, and eventually dropped 85 cents into September.  


As planting delays & prevent plant decisions increased, so did overall wildly bullish ideas. Earlier sales were being bought back at significant losses, with virtually no new sales being made as prices climbed to over $4.70 by June. U.S. producers planted into mid-June, and post-planting growing conditions were favorable for much of the Midwest as yields in many areas far exceeded expectations. Prices subsequently dropped by approximately $1.20 per bu. into harvest.     

What’s the lesson?

While this stroll down Memory Lane of these crop years has been fun, looking back into the past will never tell us where prices will be heading this year or in the future. Each year is like a new chapter in a book of how the market very frequently does the unexpected, and sometimes, the unthinkable.

In light of the many examples listed, and there are many more, it is simply unrealistic to expect good marketing results with price prediction (or even a price bias) included in your plan. Instead, focus your efforts on consistently limiting downside exposure, with a disciplined, non-emotional plan to capture equity.

Manage put options in lower markets, and conversely, gain a better position at higher levels in rallying markets. Convert portions of your production to sales and then attach call options to capture any upward market movement.

Decisions like these can produce much more desirable results for your farm operation. 

Advance Trading

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The risk of trading futures and options can be substantial.  All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71.  Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc.  Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Fred Dietz

ag risk management advisor, Advance Trading, Inc.

A University of Illinois graduate in Agricultural Economics, Fred has been helping grain producers manage their price risk since 1997. Prior to working at ATI, he was a Farmer Marketing Advisor in East Central Illinois, and later, a Grain Originator/Merchandiser in Northern Illinois. Working from Maple Park, Ill., Fred is married and has five children.

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