Are There Predictable Crop Price Cycles?

The downturn in crop prices that began in mid- to late-2014 and continues today has led to declining farm income and downward pressure on farmland values and rents. The financial condition of many farms has worsened as a result. In this environment, there is an understandable interest in the subject of when crop prices might recover. This naturally leads to the question of whether there are predictable crop price cycles in the long-run. Many attempts in price analysis rely on an intuitive, and relatively simple, causal chain exemplifying the relationship between price and quantity in crop markets. High prices create the impetus for more production, which in turn, leads to more acreage. This acreage expansion creates a larger quantity supplied to the market which results in lower prices. These lower prices result in less acreage planted for production and eventually will result in prices moving higher. This process then repeats over time in a classical cobweb framework. This intuitive explanation of crop market dynamics presents an argument for a cyclical, and therefore somewhat predictable, pattern of price formation over time. While intuitively appealing, this cyclical framework for thinking about long-run price determination requires careful examination, which is the purpose of this article.

Read more of this article, including data figures, at FarmDocDaily by clicking here

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