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"However, it is unlikely that
soybean prices can be maintained for long periods at the current
level," warned Darrel Good. "For the 2004-05 crop year, prospects
for continued tight world supplies should also be price supportive.
The most uncertainty, as always, surrounds the prospects for U.S.
and world production in 2004 and beyond. That is, what sort of
weather patterns will be experienced?"
Good's comments came as he
reviewed recent trends in corn and soybean prices. The annual U.S.
average farm price of corn in the 1960s ranged from $1 to $1.24. The
average prices of soybean ranged from $2.13 to $2.75 per bushel.
"The world changed beginning in
the early 1970s, as there were significant crop problems around the
world and the former Soviet Union began importing commodities," said
Good. "The average price of corn jumped to $1.57 in 1972, $2.55 in
1973 and $3.02 in 1974. The average price of soybeans jumped to
$4.37, $5.68 and $6.64 in each of those years, respectively. It was
the beginning of a new era for prices."
The current market situation
for these crops is characterized by a small U.S. soybean crop in
2003, a high rate of soybean consumption by China, declining
competition from China in the corn export market, a weak U.S.
dollar, rapid expansion in consumption of corn for ethanol, small
U.S. and world grain inventories, and relatively high prices. Are
these markets embarking on another new era of higher prices? Good
asked.
"The inability of corn and
soybean prices to remain at consistently high levels historically
makes us initially skeptical of such prospects," Good said. "The
high corn prices of the early 1970s quickly faded by the late 1970s.
Prices were at relatively high levels from 1979-80 through 1984-85,
fueled in part by small U.S. crops in 1980 and 1983.
"Since 1983-84, however, the
annual average farm price of corn has averaged above $3 only in
1995-96 and averaged under $2 from 1997-98 through 2001-02. The
annual average price has been above $2.50 only 11 times in the past
30 years, most recently in 1996-97."
Good noted that the price
pattern for soybeans has run a similar course. The annual average
price was above $6 only 12 times in the past 30 years, most recently
in 1997-98. The average was under $5 from 1998-99 through 2001-02.
The highest average price occurred 20 years ago.
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top of second column in this article]
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"The last extended period of
relatively high corn and soybean prices was from 1995-96 through
1997-98," said Good. "The so-called freedom-to-farm program of 1996
was enacted during a period of dwindling world inventories and
relatively high prices. Many suggested we were on the brink of a new
era of strong demand and consistently high prices, and it appeared
that was the case.
"Consistent large crops in the
late 1990s, along with a significant economic slowdown in Asia,
proved those expectations wrong."
What is different now? There
have been at least two important changes on the demand side in
recent years. First, demand for agricultural commodities in Asia,
particularly China, has grown rapidly, and China is now a major
importer of soybeans. Second, the demand for corn for ethanol
production has increased and is now institutionalized by federal and
state subsidies.
"On the supply side, the world
has not been able to maintain grain production at consistently high
levels," said Good. "Record world production of both wheat and feed
grains occurred in 1996-97 and has been highly variable since. Wheat
production has been especially small for two consecutive years.
"In addition, average soybean
yields in the United States seem to have reached a plateau, with the
record yield now 10 years old. In contrast, world soybean production
continues to expand rapidly, due to growth in area devoted to
soybean production in South America."
The 2004 U.S. corn and soybean
growing season will be extremely important, starting with
indications of planted acreage on March 31. All available acres will
be planted, so prices do not have to move higher in order to "buy"
acreage. Relative prices may be important in determining acreage of
individual crops, but many planting decisions have already been
made.
"It
is not possible to determine whether prices have entered a new era,
like that which occurred in 1972, or are just experiencing a blip
similar to those that have occurred over the past 30 years," said
Good. "However, the result of the current high prices is that the
market is now offering relatively high prices for the 2004 crops and
above average prices for the 2005 crops of corn and soybeans."
[University
of Illinois news release]
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