CORN AND SOYBEAN PRICES BREAKOUT FROM A FOUR YEAR SLUMP?
prices for corn and soybeans have been at low levels since late
summer of 1998. For the 44 months from August 1998 through March
2002, the average monthly central Illinois cash soybean price
ranged from $4.08 (July 1999) to $5.57 (November 1998). The average
price over that period was $4.68. April 2002 will be the 45th
consecutive month of extremely low soybean prices. From August
1998 through March 2002, the average monthly central Illinois
cash corn price ranged from $1.58 (September 2000) to $2.145 (May
2000). The average price over that period was $1.90. As with soybeans,
April 2002 will mark the 45th consecutive month of low corn prices.
This is the longest period of low prices since the 1960s.
prices have been at low levels since August 1998, the range in
cash prices has been large. For corn, the lowest average daily
cash price in central Illinois was $1.45 (August 1, 2000) and
the highest price was $2.225 (May 3, 2000). The range in cash
prices during each of the three crop years 1998-99 through 2000-01
varied from $.595 to $.775 per bushel. For soybeans, the lowest
average daily cash price in central Illinois was $3.875 (July
8, 1999) and the highest cash price was $5.795 (November 11, 1998).
The range in cash prices during each of the three crop years 1998-99
through 2000-01 varied from $1.055 to $1.92.
the current marketing year, the pattern of low prices has persisted,
but the trading range has been relatively narrow to date. For
corn, the average daily cash price has varied from $1.795 (October
15, 2001) to $2.03 (September 13, 2001), a range of only $.235.
For soybeans, the average daily cash price has varied from $3.985
(October 22, 2001) to $4.715 (September 3, 2001), a range of only
$.73 per bushel.
price patterns described here lead to two important questions.
First, will cash prices during the current marketing year exceed
the ranges established in the first 7.5 months of the marketing
year? Second, when will cash prices break out of the four-year
pattern of extremely low prices? The second question is phrased
as "when" will higher prices occur, not "if"
higher prices will occur.
price range for the current marketing year could be expanded by
a lower cash price, a higher cash price, or both. For soybeans,
the lowest cash price to date is below $4 and is consistent with
the magnitude of lows for the previous three crop years. Given
intentions by U.S. producers to reduce soybean acreage in 2002,
it is unlikely that new lows will be established in the cash market
soon, if at all. If the trading range is to be expanded, it is
most likely to occur with higher cash prices. Over the past 28
years, the lowest cash price of soybeans in central Illinois occurred
in the fall (September, October, or November) 12 times, as was
the case this year. The highest cash price in those 12 years occurred
in May twice, June four times, July five times, and August once.
In addition to those 12 years, the highest cash price also occurred
in May, June, July in five other years. A new high in the cash
soybean market this year will likely require confirmation of reduced
acreage and a period of concern about the crop. If acreage is
not reduced, a period of more significant threat to the crop will
corn, the lowest cash price in central Illinois to date is well
above the lows established in the previous four crop years while
the high is below the highs established in the three previous
crop years. Given U.S. producers intentions to plant more corn
in 2002, the cash price range could arguably be expanded by either
a new high or a new low. In the previous 13 years when the lowest
cash price was established in the fall, the highest cash price
occurred in the May through August period 12 times. The high was
in December last year. If a new high is to occur, it will likely
require a threat to the U.S. crop during the summer of 2002. Over
the past 28 years, the high in the cash corn market occurred in
the fall on nine occasions (as is the case so far this year).
The lowest cash price in those years occurred in August six times
and July twice. A good growing season in 2002, in combination
with more acres, would likely produce a new low in the cash corn
market in the summer of 2002.
are several reasons for the long period of very low corn and soybean
prices and the importance of those factors has been debated. Fundamentally,
the most important reason has been consecutive large crops in
the U.S. and the rest of the world since 1996. In the absence
of price support, supply control, or storage programs, market
prices have moved to a low level in order to "clear the market".
Prices will move to higher levels when supply is significantly
reduced and/or demand is significantly expanded. Demand shifts
tend to occur rather slowly, so that higher prices are more likely
to occur as a result of a reduction in supply. Given current U.S.
and world farm policy, a supply reduction may have to be generated
by a shortfall in production. Those occurrences are difficult
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