Historical Data Reveal Commodity Trends

Historical Data Reveal Commodity Trends

Past events offer business insights

Hang onto your bullish hopes: Historical commodity price cycles suggest farm country should anticipate an uptick in corn prices as early as 2016.

“We can have good crops the next few years, but don’t become overly bearish,” explains Rich Posson, senior market analyst, Pro Farmer. “Prices should return to near $7.50, near the cyclical high, perhaps even a new record high somewhere from $7.50 to $8.70, and you can imagine something similar for wheat and soybeans.” Cycles of climate and corn yield suggest a crop problem is due sometime between 2016 and 2018. 

His assessment is based on observations of U.S. cash corn prices dating to 1720. He is quick to point out cycles in agriculture take unexpected turns. Yet crop commodities and the national economy often move up or down predictably. 

Plan Around Historical Data. A marketing plan must be multi-faceted and built on reliable data, says Aaron Smith, crop marketing specialist, University of Tennessee. 

With aggregate historical data, producers might examine trends over years or examine several nonconsecutive years to explore factors surrounding crop prices, such as those in 2004, 2009 and 2013 when production and yield exceeded trend. 

Crop commodities operate on 36-, 72- and 216-year cycles, Posson argues. This kind of information can keep top producers from becoming near-sighted in light of the commodity price downturn forecast for the months ahead. “All I’m suggesting is a general trend can work higher for the demand to commodities toward the end of this decade, and then we’ve got to be careful,” he explains. “Recession is going to show up at the end of this decade and is going to cause some complications.”

Marketing Strategy Tips. Rather than making major sales decisions based solely on cycles, Posson recommends producers use price targets.

“Maybe corn rallies from $6 to $7, but the cycle hasn’t topped, and you think it will rally to $8,” Posson notes. “You need a price objective. If it goes below that level, hedge and catch up on cyclical analysis later.”

Data from the recent past can also inform a marketing plan, Smith adds. He regularly reviews the U.S. dollar index for exports, though he says producers must be discerning when examining global currency. 

“The U.S. dollar index is an aggregate of a whole bunch of exchange rates that don’t necessarily matter,” Smith explains. “For example, the currencies that matter most for soybeans are the Chinese yuan, Brazilian real and Argentinian peso. If the U.S. dollar is appreciating relative to the French franc but decreasing against the real, that might not be captured in that index. You can look at the U.S. dollar index as a kind of scan-level analysis.”

Corn prices rise and fall predictably. Cycle bottoms occur every 36 years, as happened in the 1830s and 1860s, says Rich Posson, senior market analyst, Pro Farmer. There also are 72- and 216-year cycles.


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