When presenting marketing outlooks to producers, I used to ask if anyone remembered the idea of a new price plateau that was prevalent for a short period of time during the mid-1990s.
I soon put this question to rest as no one would admit to remembering the enthusiasm the market experienced in the summer of 1996 due to dwindling corn supplies. Rebuilding of ending stocks took place, enthusiasm quickly waned, and commodity prices retreated.
Other than some intermittent rallies over subsequent years, futures traded in a relatively sideways path until 2006.
The fall of 2006 ushered in not only new levels of commodity prices but also new levels of volatility. Causes for this increase in price levels and volatility are many and include:
- World and U.S. ending stocks-to-use ratios for corn, beans, and wheat moving to levels that demand attention;
- The continued increase in the percentage of U.S. corn used in the production of ethanol (currently at 40 percent);
- Adverse weather events around the world when production hiccups are not easily ignored;
- Large increases in money involved in the markets, both speculative and investment; and
- Perceived discrepancies in quarterly stocks, especially in corn.
While all of these issues have helped produce very attractive futures prices over the past five-plus years, they also have made marketing more difficult due to price volatility.
A private analyst estimated that from 2000 through 2005, daily price ranges for corn and beans on non-report days averaged nearly 4 and 12 cents, and on USDA report days, the price range increased to 6 and 17 cents.
The 2006 through 2011 price ranges on non-report days were 14 and 25 cents and on report days were 18 and 33 cents for corn and soybeans, respectively.
So far in 2012 these ranges are 12 and 20 cents, and on report days they are 33 and 44 cents. This has made “pulling the trigger” on pricing opportunities even more difficult, especially on an emotional level.
With this in mind, it is helpful to evaluate pricing opportunities by comparing where prices have been since the jump to the higher levels that began in 2006. The two graphs shown reflect the weekly closes for nearby futures for corn and soybeans over the past five calendar years. These are useful guides when gauging pricing opportunities while at the same time attempting to lessen the emotion of marketing grain in these volatile times.
Bruce Stremming is MID-CO COMMODITIES’ commodity risk consultant. His e-mail address is firstname.lastname@example.org.