John Pocock 1

April 13, 2011

3 Min Read

 

Nearby corn futures prices are now comparable to the record-high prices that farmers saw briefly in mid-2008, and an $8 price could be just around the corner, depending on weather and outside market pressure, says Chad Hart, Iowa State University agricultural economist.

“The closing price on Monday (April 11, 2011) was $7.81’2 for July 2011 corn; that’s the highest settlement price we’ve ever seen before for nearby corn futures,” notes Hart. “In July, 2008, we did see higher highs during the day, but they didn’t close as high as they did last Monday.”

The difference between 2008 corn prices and 2011 corn prices is sustainability, adds Hart. “In 2008, we had a quick run up and then a quick run down in corn prices,” he says. “The current high price points for the 2011 corn crop already have longer legs that what we saw in 2008.”

Timing has much to do with the market’s current ability to sustain high corn prices, says Hart. “In 2008, prices peaked when there was still concern over how the crop was doing after it had already been planted and faced some early production risks,” he points out. “In 2011, we have almost all the planting and production risks ahead of us that we’ve still got to work through. Those risks and uncertainties are keeping the price higher, for a longer period, than they did in 2008.”

Outside market pressure also differs now than in 2008, he adds. “In 2008, oil spiked to $140/barrel, and then it went down rapidly,” says Hart. “Today, we have comparable corn prices to what we had then, but oil is still $30-35/barrel off its record high.”

The 2008 record-high price for corn was a very unique event, however, notes Hart. “During the first half of the growing season, everything was pointing up, up, up for corn prices, and then after July, everything was pointing down, down, down,” he says.

This year, the fundamentals of the market don’t indicate that a sudden price change downward will occur anytime soon. “If our current corn planting intentions hold and we get trend yields and production, we’ll produce about 13.5 billion bushels of corn, which is also the current demand,” says Hart. “So, if the supply equals demand, our corn stocks won’t grow any larger and our current price levels will likely be maintained.”

Still, just for corn prices to hold at current levels, U.S. farmers would have to plant everything that they intend to plant and also obtain at least trend yields. “If they don’t, then we won’t produce enough corn to meet demand, which would push prices even higher than what we’re seeing today,” says Hart. “As long as global economic conditions continue to slowly grow, and our planting and production risks are still out there – those two economic factors support holding onto these higher corn prices longer than we did in 2008.”

He adds that farmers could also plant and produce more than expected, or global demand could unexpectedly cool off, and then prices would go down.

In the meantime, the current corn market is creating both a planting and a preharvest marketing incentive. “Currently, there are very profitable preharvest marketing opportunities available for farmers who want to take advantage of them,” says Hart. “In Iowa right now, I’m looking at prices that are $2/bu. above cost of production, which is very attractive.”

As a result, farmers would profit quite well by locking in a corn price right now, says Hart. “It’s not always a good idea to put all your eggs in the same basket,” he says. “So, now might be a good time to grab some of that profit. You might also have opportunities for higher profits later, but locking in a price on some of your crop now would at least guarantee that you’ll make a very handsome return on a portion of your total crop.”

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