Where are Corn and Soybean Prices Headed?
Posted: February 3, 2016
If you pay attention to my thinking, speaking and writing about grain marketing you probably have a firm grasp of my belief that no one on earth can predict the future. This is unfortunate for grain farmers. If we could predict future prices we would simply wait until the market price is at its highest level then market an entire year’s worth of production. Imagine how much fun that would be. Since this ability is not possible, grain marketers are stuck with doing the best they can with what they have.
I also firmly believe farmers must know their true cost of production if they desire to implement effective marketing strategies. Farmers will tell me they don’t know their cost per bushel until harvest. Of course, once we know how many bushels we have we can then divide the total cost by these bushels and get a firm cost of production. OK, I agree with this. However, my point is we can make a fairly accurate guess of next year’s cost of production by using last year’s costs and yield well before the crop is even planted. When we do this we are able to capture any attractive prices occurring in the pre-planting and/or pre-harvest season. We do not have to wait until after harvest to know the cost of operating our grain business to decide on a market price we like.
Other farmers will tell me they don’t need to understand their costs because just want to get the highest price possible. DUH! That’s what everybody wants. Unfortunately, that is virtually impossible to achieve. We cannot tell what the highest price is until the marketing season is over and by then this highest price is likely long gone.
So, let’s pretend your farm management team has calculated your 2016 cost of producing corn and soybeans during this off season. As an example only, let’s say your cost is $4.10/bu. of corn and $9.30/bu. of soybeans. Now we watch market prices. If and when prices are above these breakeven levels the opportunity exists to price some bushels and lock in a modicum of profit.
As we anticipate the development of 2016 prices, let’s take a run at projecting where prices will go for this coming marketing season. Remember, nobody can predict the future with any certainty, but it can offer some insight that might be reflected in our price expectations when we try.
When I project a future price I start with anticipated harvest bushels. To get total harvest I need acres harvested times yield per acre. Without knowing much about how many acres get planted in the U.S. (or across the globe) or what the per acre yield turns out to be; I am willing to state that the acres planted and bushels per acre in 2016 will be close to what happened with the 2015 crop – both corn and soybeans. We had an “adequate” harvest in 2015 and can see what that does for prices. I expect another adequate harvest in 2016 and expect prices to be very close to what 2015 gave us.
Naturally, we need to include demand expectations in our efforts to predict a future price so let’s explore demand in 2016 a little. Ethanol production has plateaued, animal feeding units are better than they were but are nothing too exciting, many foreign countries are expected to plant as many acres (if not more), the Chinese economy is expanding but staggering, our currency is the strongest of all the exporting countries, energy is relatively cheap, and South America is starting to harvest what looks to be at least an average crop. As with my projections of total harvest, I have 2016 demand very similar to 2015 demand with the same effect on prices – not much difference between 2015 and 2016.
As I watch for alternate market news that impacts my current year-out guessing, our 2016 crop marketing opportunities look to be very similar to the ones we had for the 2015 cropping year. Remember, I cannot predict the future and have been inaccurate many times when I do it.
My points are these;
- What does it cost your farm to operate?
- What do you expect prices to be?
- What is your current guess of total 2016 farm revenues?
- What is your farm management team’s plan for managing your business in the months ahead?