There's a 20% Chance for Sub-$3 Corn

January 6, 2016 12:00 PM

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.

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Spell Check

Kearney, NE
1/6/2016 05:31 PM

  Local corn price today in central NE ranges from $3.05-$3.25,... I would say the current odds of corn selling below $3.00 is much higher than 20% when the price only has to drop 6 cents to get there. There is starting to be a lot of off colored corn in those uncovered ground piles, ethanol is hurting due to low crude prices, China is experiencing a major slow down, exports are slow, the dollar is high, competitors are manipulating their currencies,... Yet analysts predict that we will plant MORE acres of corn next Spring,....Without a major weather disaster, sub $3.00 corn is almost a certainty. We in Ag seem to never learn that a bust always follows a boom.

Floating Farmer
Springfield, IL
1/7/2016 07:03 PM

  Too bad we don't have a shortage of ag economists and market analysts!!!!!!!! I am tired of these quote professionals telling us what kind of prices to expect now and for the fall of 2016 and beyond !!!!!!!!!!!!!!!!!!You experts are already telling us how many bushels of corn, soybeans and wheat we will be producing for 2016!!!!!!! You experts seem to forget one main ingredient in your over zealous yield predictions and that is weather !!!!!!!!!!!!!! Areas of the Midwest is currently experiencing flooding of epic proportion !!!!!!!!!!!!! I predict we will have late planting followed by a hot and dry summer of epic proportion !!!!!!! What do you think that will do to crop yields ? What do you think that will do to crop prices ? Remember 2012 !!!! I sure as hell do !!!!!! The only thing that Schnitkey says that I agree with is to not lower crop insurance coverage ! I totally agree because mother nature is going from one extreme to another. I say buy all the coverage you can get your hands on with the harvest price option !!!!!!!!!! I read an article that predicts 6 dollar plus corn by late summer if this scenario plays out !!!! So I say keep the bin doors shut and wait because better prices are coming !!!!

Western, NE
1/7/2016 08:52 AM

  Maybe they should just say there is a 50-50 chance of a 20% chance of $2 corn. The same could go for $5 corn. I don't think we'll see a recovery until 2018 or 2019. But, it won't be anything like what was there in 2012-2013. In the meantime, those that depend on production ag had better start to sharpen their pencils if they want to continue to sell product to survive.


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