Using historical data, University of Illinois ag economist Gary Schnitkey says it’s possible to lay down a distribution of possible 2016 harvest prices for corn.
“This analysis suggests about a 20% chance of harvest prices less than $3.00 per bushel,” he says. “Given the chance of low prices, farmers should maintain high coverage levels when purchasing crop insurance.”
Schnitkey says undoubtedly, harvest price will differ from projected prices earlier in the season. However, between 1972 and 2015, the average harvest price differed only $0.08 lower than the average projected price. That suggests projected prices are good indicators of harvest prices, he says.
“Stated alternatively, if you could repeat 2016 many times, the average of the resulting harvest prices would be near the projected price,” he says.
The possible 2016 harvest price ranges are approximately as follows, according to Schnitkey:
- 21% chance of less than $3
- 24% chance of $3 to $3.50
- 21% chance of $3.50 to $4
- 16% chance of $4 to $4.50
- 9% chance of $4.50 to $5
- 7% chance of more than $5
“While centered near $3.80, historical changes suggest a large range of possible harvest prices in 2016,” he says. “The highest resulting price is $6.73 per bushel coming from the 77.0% change occurring in 1973. The lowest resulting price is $2.75 per bushel coming from the -27.6% change occurring in 2004.”
Schnitkey says the move to lower crop insurance coverage to lower premium costs could prove risky this year.
“This may not be prudent, as history suggests there still is a large risk of low prices,” he says.