Prices Chart of Illinois Corn, Soybean, and Wheat

3
The lowest average monthly price of
soybeans since December 2006 is lower
than the lowest price projected from
performance in the first 5 years of the
previous period. The lows were in
December 2006 and January 2007, perhaps
indicating the designation of the new price
era should be a few months later than
December 2006. The highest average
monthly price of wheat projected by past
performance ($10.15) was exceeded in
March 2008 ($10.40). Prices have declined
sharply since then. Average monthly corn
prices since December 2006 have been
within the projected range.
Are the price level expectations for the
current era consistent with known
fundamentals? The question really centers
on corn prices. While the methods
employed here are quite simple, the
average price level projected for corn
($4.60) is consistent with other price
projections that use sophisticated
econometric models (e.g., Babcock 2008).
Compared to the futures market, which is
currently projecting prices close to $6
through 2011, our projection of the average
corn price is relatively conservative.
Current market fundamentals center on
large amounts of corn used for ethanol
production, suggesting that corn prices will
continue to be closely tied to energy prices
in the immediate future and that the price of
the other two crops will have to be
competitive with the price of corn. At the
margin, the simplest way to think about corn
prices is the value of corn to the ethanol
producer. To a large extent, the value of
corn is a function of the price of ethanol,
which is a function of the structure of
subsidies and the price of gasoline. In turn
the price of gasoline is a function of the
price of crude oil. As a result, a key variable
in determining the level of corn prices in the
future is the price of crude oil.
There are several important “take-home”
points for producer’s struggling with the
question, “What is a good price for corn,
soybeans and wheat?” First, it is likely that
a permanent shift has occurred in the level
of corn, soybean, and wheat prices. The
main point of debate is the size of the shift.
Second, peak prices since December 2006
for all three commodities were well above
average prices projected for the new era.
This does not mean even higher prices
cannot occur in the near future, but it does
provide useful perspective on just how high
prices did move. Third, prices can still
move to “low” levels in this new era,
particularly in relation to production costs,
and they can stay there for considerable
periods of time. For example, corn prices
could easily return to the low $3 range for a
period time, soybean prices to the low $8
range, and wheat prices to the mid $3
range.
REFERENCES
Babcock, B.A. “When Will the Bubble Burst?” Iowa Ag Review, Winter 2008, Volume 14, No. 1,
pp. 1-3. [http://www.card.iastate.edu/iowa_ag_review/winter_08/article1.aspx
]
Trostle, R. “Global Agricultural Supply and Demand: Factors Contributing to the Recent
Increase in Food Commodity Prices.” Outlook Report No. WRS-0801, Economic Research
Service, U.S. Department of Agriculture, May 2008.
[http://www.ers.usda.gov/Publications/WRS0801/WRS0801.pdf
]
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