Returning to the New Era Corn Price Mid-Point

Returning to the New Era Corn Price Mid-Point
Scott Irwin, Agricultural Economist - University of Illinois

The agricultural economists at ILLINOIS have been championing a new era for grain prices since the rise of ethanol as a major player in the U.S corn market. Todd Gleason has more on why.

Scott Irwin is an agricultural economist…
2:44 radio
2:57 radio self-contained

Scott Irwin is an agricultural economist from the University of Illinois. He and his colleagues believe grain prices have achieved a new higher plateau era. An era that started just after Congress mandated renewable fuels be ramped up in the U.S. gasoline supply over a ten year period beginning in 2005. Irwin says it is the third such era.

Irwin :25 …within a range during these eras.

Quote Summary - The periods that I call eras of grain prices run from post World War II to 1973, from 1973 to 2006, and 2006 to the present. What we have found to date is that grain prices, unadjusted for inflation, tend to move within a range during these eras.

The current range for corn is something like $3 dollars per bushel on the low end and $8.00 on the high. The highs come less frequently, usually driven by a weather related short-fall. Consequently, prices spend more time on the lower end of the range than the top end. However, he doesn’t really know why the prices are so range-bound.

Irwin :29 …tend to bounce around in a range.

Quote Summary - No real good answers for that. My own personal view is that it reflects relatively stable supply and demand dynamics. These are food commodity markets that don’t change very rapidly in terms of who’s producing and who’s consuming. As long as economic growth in not wildly high or low, we’ll tend to bounce around in a range.

The mid-point, by-the-way, of that range in Illinois since 2006 has been about $4.50 for corn. However, Irwin says corn prices over the last four years have averaged about $3.50 per bushel. He thinks this means corn prices are due to go higher. However, marketing on that belief is difficult.

Irwin :38 …closer to $4.00, rather than $3.25 or $3.50 is more realistic.

Quote Summary - If you believe conventional wisdom, you should prepare for and project sub $3.50 corn prices for as far as the eye can see. This is not my view. I will be the first to admit prices have gone lower, longer than I expected when we came off the highs, but I still believe a projected average price over the next five years closer to $4.00, rather than $3.25 or $3.50 is more realistic.

Admittedly, Irwin has more confidence in his ability to predict the mid-point than the movement of prices. Mostly he says the upward moves are predicated on weather problems.