Price scenarios for corn and soybeans for 2009
Every year, corn and soybean prices establish a range of prices. What is the likeliest scenario for prices this year? Is the high in? We will answer both questions and first provide a historical perspective of where prices typically trade from winter highs to fall lows.
In most years, corn or soybeans will see their highest prices when they reflect the most uncertainty. Typically this occurs in late winter or spring. The market has used up six months of inventory, and all of the unknowns with the new crop lie ahead. As planting progresses, prices generally begin to slide. When planting is complete, one hurdle is behind the market. If weather is adequate, the market moves during the early growth stage, passing a second hurdle. The next hurdle for corn is pollination and for beans early August weather. Unless there is some other outside influence, prices usually are still moving lower, reflecting less and less uncertainty. As corn matures and moves through pollination, end users back away with a reduced urgency for coverage. Farmers who may have kept some of their weather scare or "gambling" stocks begin to sweep out bins, and this often puts the last round of pressure on prices by late summer.
In general, production has become consistent in recent years rather than a wild card, as it may have been 30 years ago. Improved genetics, tillage practices and better farmers all contribute to better crops. As a rule of thumb, as the market factors in uncertainty, one should probably expect that both corn and soybean futures will eventually move down 25% to 35% from their peak. As an example, the corn market recently peaked on December futures just over $4.70. A low of 25% to 35% down defines a range of prices between $3.52 to $3.05. Not only is this logical but in line with where the corn futures dropped to last year. For soybeans, in November futures (which recently topped at $10.99-1/2), a 25% drop brings the downside objective to $8.24. A 35% drop and the objective is $7.80. Again, both numbers are logical and likely.
What about upside potential? Typically, for the corn market, rallies after the 4th of July are rare. This year could be different, considering how late much of the crop is. A belief in the law of averages may suggest that a cool, wet spring could give way to drier and hotter temperatures. If that occurs in July or August, there is no telling where prices could rally. However, the current snapshot of fundamental factors, especially with livestock prices on the slide, suggests corn prices will not move above $5.00 December unless weather is a factor. There is a good likelihood that the high for the year is already in.
In soybeans, November recently peaked just under $11.00. It is also likely the high is in. On the June 30 Acreage report, if acreage figures are skewed to the high side of expectations, it will be difficult for bean prices to move upward despite small supplies. End users will see a significant chance for record bushels available to the market in just a few short months. For the rest of summer, weather will be the wildcard that trumps all.