“What do you think will be the normal, or typical, corn price between 2025 and 2030?”
There are many questions facing agricultural producers today, but chief among them may be how long we can expect prices to stay at current levels. As we have discussed, the current prices have afforded producers outstanding profit levels but have also been accompanied by higher costs. The experience of the cost squeeze of 2014 – when prices fell and costs were slow to adjust – is still fresh in many people’s minds. How prices move has many implications for the profitability of producers as well as for things like farmland values and equipment prices.
A Look at Historical Corn Prices
To start to get a better feel for the market year average prices, let’s gather some data. While we don’t know how things will unfold, it is useful to just look at the historical experience and get a perspective on how much prices have moved from year to year. To do this, we pulled together the market year average prices for corn since 1970 (Figure 1).
As one can see, the market year average price has been quite volatile in recent times. Up until 2007, these prices were rarely above $3.00 per bushel. However, since that time, they have ranged from a high of $6.89 in 2012 to a low of $3.36 in 2016 and 2017. It is that decline that puts significant pressure on farm incomes, as costs slowly adjusted while prices fell rapidly. While not as high as the 2012 peak, prices in 2021 and 2022 were, again, above $6.00 per bushel.
The More Recent Experience
Let’s spend some more time looking at the prices since 2000. These data, adjusted for inflation, are shown in Figure 2. The chart shows the average price from this period of $4.94, one standard deviation above the average is $6.51, and one standard deviation below is $3.38. The variability in the data is large, with a standard deviation of $1.56 per bushel. As you can see, the prices have rarely been very close to the average of $4.94.
There are a few things that I think we can take away from this chart. First, today’s high prices are not at extreme levels. From 2010-2012 they were higher than current levels. Second, the prices can move swiftly and substantially. The standard deviation of $1.56 per bushel is very large. Such large moves can quickly shift the profit picture. Third, recent prices have not been above average for an extended period of time, only two years so far. From 2007 to 2013, they fell below the average only once. However, from 2014-2019 they were always below the average. In other words, in the last 22 years, prices have undergone relatively long stretches, either above or below average.
I believe the main takeaway from this data is: Do not underestimate the magnitude with which prices can fluctuate. How many of us would be surprised by the MYA price falling or rising $1.54 per bushel in 2023? That would create a price band of $7.92 to $4.79 per bushel. Quite a range indeed. If one wanted to be very confident in creating a price band that captured the MYA price with a high degree of confidence, you should probably make it even wider.
So what does this mean for those of us in agriculture? First, producers and marketers need to assess their risk management strategy carefully. What would substantially lower prices mean for the bottom line, and what can you do to avoid situations that would be financially difficult?
Second, what could you do to benefit from substantially higher prices? How does one seek a balance between risk aversion and profit-seeking? This will require asking some hard questions and preparing a well-thought-out strategy, whether you are in agribusiness or commodity production.
In all cases, I think it requires having a holistic risk management plan. It’s not just about marketing; make sure crop insurance, government programs, and other risk management tools are utilized. Develop sound capital investment plans and deploy resources wisely. Perhaps the best thing to do is to build financial resources in these profitable times that allow you options if/when things change.
So, what do you think is a reasonable range for the MYA corn price in 2023 and subsequent years? How might changes from current levels impact your business and strategies? Challenge your thinking by joining AEI Premium, the network for agricultural decision makers.