Many uncertainties will push the markets up and down throughout the 2015-16 marketing year. But University of Illinois economists Darrel Good and Scott Irwin agree – this year could mark an important turning point in grain prices.
“Corn prices during the 2015-16 marketing year will be pivotal in determining if these financial pressures continue, worsen or are reversed,” they write in a recent farmdoc article.
The USDA projects the 2014-15 marketing year with an average price range of $3.55 to $3.85, which will likely end up the lowest marketing year average since 2009-10, and around $2.00 per bushel less than the previous four years.
Not everyone agrees where prices are headed next, but Good and Irwin use a two-step process to form a very early season projection of an average price this coming marketing year. First, they determine the likely supply and balance sheet for the marketing year based on current information about this year’s planting intentions and likely demand for domestic and export markets. Then, they use the 2007-08 through 2014-15 relationship between marketing year ending stocks-to-use ratio and the average marketing year farm price of corn.
Here’s what they found: Total consumption is projected at 13.805 bu., with carryover stocks of 1.447 bu., for a ending stocks-to-use ratio of 10.5%.
“Based on that relationship, the projected stocks-to-use ratio of 10.5% points to a 2015-16 marketing year average price of $4.65,” the economists note.
But that forecast of $4.65 should be viewed with some reservation, they add. That’s because there’s enough variation in the relationship between stocks and price during the past eight years to warrant possible deviations. Also, continued strength of the U.S. dollar could result in lower prices. Still, their analysis suggests potential for new corn crop prices to move higher if the U.S. average yield comes in at or below the trend value of 164 bu. per acre, and if demand is not as week as some are assuming.
“We maintain expectations for a 2015-16 marketing year average price near $4.25,” the economists say.