The New Era of Corn and Soybean Prices Is Still Alive and Kicking

There is no shortage of doom and gloom about grain price prospects at the present time. Prices have indeed fallen to quite low levels compared to the high prices that occurred over much of 2008-2013. For some, this is proof that the high prices of 2008-2013 were a temporary spike, albeit a rather long-lasting one, instead of a shift to a permanent and higher level of prices. This flies in the face of our long-argued position that corn, soybean, and wheat prices moved to a new era of higher average nominal prices beginning in late 2006 (Good and Irwin, 2008; Irwin and Good, 2009; farmdoc daily, March 29, 2011; April 12, 2011; April 19, 2011; February 27, 2013; February 28, 2013; November 7, 2013). The new era replaced the previous era that spanned from January 1973 through November 2006. We argued that the new era of prices was primarily driven by demand shifts associated with rising biofuel production, particularly corn-based ethanol. Our projection of new era average prices and price ranges was based on an extremely simple analysis. This method turned out to be surprisingly accurate but it lacked a strong foundation in more fundamental supply and demand projections. In this article, we use our recently developed models of the relationship between the year-ending stocks-to-use ratio and marketing year average prices for corn and soybeans to provide a more rigorous economic foundation for the original new era grain price projections. These models are particularly useful in helping to frame the ongoing debate about long-term average grain prices. For additional background information on the debate about the long-term direction of grain prices see the farmdoc daily articles by Professor Carl Zulauf on March 11, 2016 and by Professor Paul Peterson on September 3, 2015.

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