How does this crop price run-up compare with previous price surges?
How long can this go on? How much higher will corn prices go? Those questions are of concern not only to corn farmers but to producers of other crops as well. In general the price increase for other commodities followed that of corn as crops competed with each other for acreage as, within agronomic and weather limits, farmers shift to the crop with the greatest profit potential.
Leaders of a number of nations are also interested in the answers to those questions. Are they facing decades of tight food supplies? What plans do they need to make to ensure that the citizens of their countries have access to adequate diets?
To get a handle on that question, we examined monthly nearby futures ending corn price data from January 1949 to date. Over that period there were six major run-ups in the price of corn. We looked at those price spikes, to determine their duration from start to finish. The peaks were easy to identify. The identification of the beginning and end of the price peaks were more subjective, but results may still provide some insight into the present market.
The first major price spike in corn following World War II began from a low of $1.26 per bushel closing price in July 1972. This price spike was primarily demand driven, including the strong entry of the Soviet Union into the world grain markets. The monthly closing price peaked in July 1974 at $3.90/bushel, an increase of 308%.
By the next summer, June 1975, the price had fallen to $2.3575 and then bounced back into the upper $2 range for 23 months. The price then descended to $1.9175 for the August 1977 close.
The price rise was 24 months from start to peak and 37 months from peak to bottom with a total duration from start to finish of 61 months. This price rise established a new price plateau that was $1.08 above the previous period.
Over the next two decades there were four price spikes, all supply (actually lack thereof) driven. The first price spike of that period lasted 31 months from low (a March 1980 close of $2.5825), to high (a November 1980 close of $4.09), and back to low (October 1982 close of $2.1525, a monthly closing price not seen since five years earlier in October 1977). The total duration from start to finish was 31 months.
The second price spike of this period started from the October 1982 low and rose to a double peak in August 1983 ($3.595) and March 1984 ($3.5325) before beginning a long descent to a U.S. policy driven low of $1.5375 as the February 1987 close. This price rise was triggered by the institution of the PIK (Payment In Kind) program combined with a yield drop that combined to produce a drop in production of 49%. The 1983 PIK program was an attempt to reduce government stocks by paying farmers with crops from storage in exchange for reducing their planted acreage. Farmers responded with greater reductions in acreage than was anticipated.
The third price spike started from the February 1987 low and peaked 16 months later with a June 1988 close of $3.455 followed by a low of $2.205 for the July 1989 close. The duration of the spike from low to low was 29 months.