Corn’s Worst-Case Scenario: $2.89

August 30, 2013 06:08 AM
 
Corn’s Worst-Case Scenario: $2.89

Scientist Louis Pasteur coined the phrase "chance favors the prepared mind," and corn and soybean farmers should take that advice to heart, especially in the modern era of volatile grain prices. Iowa State University economists are telling farmers to prepare for a potential market downturn in the next five years. The economists have developed a series of papers on the Ag Decision Maker website, which can be found under the Ag Cycles heading.

The economists offer different ways crop and livestock producers can ready themselves for the possibility for economic upheaval after multiple consecutive years of increasing grain prices and land values. For example, Chad Hart, associate professor of economics and Extension economist, says farmers should consider the following strategies:

• Create and follow a marketing plan based on production costs
• Buy inputs when making crop sales
• Move to a fixed-rate loan to protect against higher interest rates
• Continue to use risk management programs such as crop insurance

Michael Duffy, professor of economics and Extension economist, has reviewed the history of Iowa farmland values. He predicts a "likely decline" as corn and soybean prices fall, but also predicts that decline won’t be as steep as the Farm Crisis of the 1980s.

Dermot Hayes, professor of economics and Pioneer Chair in Agribusiness, took a deeper look into potential prices for the next five years, using an Iowa State modeling method. He predicts the worst-case scenario prices as follows:

Year      Corn       Soybeans
2013      $4.27      $9.69
2014      $3.85      $8.89
2015      $3.41      $7.85
2016      $3.12      $7.09
2017      $2.89      $6.55

"This analysis is not intended to be a forecast of annual prices in the coming months or years," cautions John Lawrence, director of Agriculture and Natural Resources Extension and Outreach. "Nor is it predicting doom and gloom for agriculture. Rather, it is intended to help put current economic conditions inot a historic context, better understand the factors that will influence prices and margins in the future, and help farmers prepare for whatever direction the market turns."
 

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