Returning to the New Era Corn Price Mid-Point
The agricultural economists at ILLINOIS believe there are three recent historical commodity price eras. For grain prices, these run from post World War II to 1973, from 1973 to 2006, and from 2006 to the present. What they’ve 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 shortfall. 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, “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 is not wildly high or low, we’ll tend to bounce around in a range.”
The mid-point 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. Marketing on that belief is difficult says Scott Irwin, “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.