By TIM ALEXANDER
Illinois Correspondent EAST PEORIA, Ill. — When professor Scott Irwin and his colleagues at the University of Illinois Department of Agricultural and Consumer Economics (ACES) issued their “new era of grain prices” projections in 2006, the economists saw corn prices averaging $4.60 per bushel and soybeans $11.04 for the foreseeable future. These new-era projections proved to be remarkably accurate over the past 12 years as a whole, with the average monthly price for corn to date at $4.43 per bushel and the average monthly price of soybeans at $11.03. The current average masks a disturbing trend, however, with extremely high prices during the first eight years and diminishing prices during the past four. With no foreseeable demand boom in sight, Irwin and the College of ACES farmdoc team outlined their updated price expectations for what he called “phase two of the new era of grain prices” during a Dec. 19 presentation at the 2018 Farm Economics Summit. Moving forward in the near future, producers should expect returns averaging $3.75 for corn and $9 for soybeans, Irwin told farmers. During his 30-minute presentation, he explained the thought process behind the price determinations, which seemed to many in attendance a bit optimistic. “The bad news from a producers’ standpoint is that there is a tendency for productivity to improve and nominal prices to grind lower, and I don’t see any evidence of a potential demand boom that would return us to price levels like (in 2006-13),” he said. “But what isn’t taken into account is the exceptional growing weather we have had the last four years. In the long run in Illinois – and the Corn Belt in general – we tend to have a measurable drought once every eight or nine years. I’m not saying we’re due, but we are kind of due.” Assuming a return to the long-run frequency of significant weather problems of about one in eight years, a long-run average price of about $3.75 for corn in Illinois is reasonable, Irwin explained. He said the range of monthly prices for corn could span $2.90-$5.50 over that time. Soybeans, projected at $9, will range from $7-$13. “To sum it up, the slow grind of downward, nominal prices will be interspersed with an occasional drought that will spike the prices up. We will get some high-price years,” he explained. “There will be price volatility and production problems here and there that are going to give us some really high prices; they will occur. Traditionally, when we have those production problems, prices go up about 50 percent. “We will have some opportunities for higher prices, but I just don’t see any combination of events right now that would return us to those $7 or $8 corn prices of those early years. “I really struggled over what to do with soybeans, with all that is going on with the carryout right now and the trade issues. Basically I defaulted to the assumptions I made in my original (2006) projections, and I used a soybean-to-corn price ratio of 2.4:1. These are ballpark, long-run averages that I think arguably are in the range of planning for the future.” As part of their price projection report issued in 2006, the ACES team defined two previous eras of crop prices: January 1947-December 1972, when the average monthly price for corn in Illinois was $1.28 per bushel; and January 1973-November 2006, when the average was $2.43. The projection of the average price in the post-2006 era was based on the premise of an equal percentage price change that occurred between the previous two times, Irwin explained. The average price projection was calculated as ($2.43/$1.28) x $2.43 = $4.60. Soybean prices were projected at $11.04, using a 2.4:1 price ratio with corn. “We are still in a new era of prices compared to the previous era. We are not going back to averaging $2 corn … $3.75 is still a lot higher than what farmers were receiving on average before the latest era,” Irwin said. The slides for his presentation, and others from the Summit, can be found online at www.farmdoc.illinois.edu/presentations/IFES_2018 |
