Predicting the 2010 prices for corn and soybeans is no easy feat, especially when you look back at the sporadic stair steps of market prices during previous year.
Patrick Westhoff, Food and Agricultural Policy Research Institute (FAPRI) co-director, says when forecasting market prices, it is important to recognize what factors caused previous and current prices.
What Just Happened?
Westhoff says corn prices rose from 2006-2008 because of
- Reduced grain crops elsewhere
- More ethanol production
- Rising energy prices
- Economic growth and livestock demand
- Weaker dollar
- Government policies
Yet, corn prices fell from the 2008 peak because of large world grain crops, slower ethanol growth, lower energy prices and a stronger dollar.
Westhoff says the story is similar for soybeans, except for a few added twists.
Soybean prices rose from 2006-2008 because of:
- Rising grain prices and resulting acreage shifts
- More biodiesel production
- Economic growth and livestock demand
- Weaker dollar
“The weaker dollar also affected soybean prices, as much, if not more, than corn,” he says.
Then, soybean prices fell from 2008 peak because of falling grain prices which caused acreage shifts. Westhoff says prices also dropped due to less biodiesel production, the economic recession and falling livestock demand.
One of the few factors that supported soybean prices was the small 2009 Argentine soybean crop.
What’s Ahead?
Looking toward the future, Westhoff doesn’t see crop prices smoothing out. “One thing for sure is we will have more volatility,” he says. “There is no question about that in my mind.”
FAPRI predicts in 2010-11, prices will dip further for soybeans because of large global supplies. While in corn, prices should increase due to support from ethanol production.
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Westhoff says it is important for farmers to keep in mind the factors that made prices rise and fall during the last few years, because these factors will be at play in future.
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