December 4, 2000
USING HISTORICAL CORN AND SOYBEAN
PRICE PATTERNS TO JUDGE CURRENT PROSPECTS
Cash prices of corn and soybeans
in central Illinois are now at the highest level for the marketing
year that began on September 1. The December corn basis has
strengthened from an average of $-0.38 during the first week
of September to an average of $-0.115 on December 1. The average
farm level cash price in central Illinois was reported at $1.985
on December 1, $0.475 above the lowest price of the marketing
year reported on September 19. The cash price range has been
larger than normal for this time of year. Over the past 27 years,
the range in the cash price of corn during the entire marketing
year varied from $0.445 (1990-91) to $2.525 (1995-96). For the
past four years, the range has varied from $0.60 to $1.515,
and averaged $1.00 per bushel.
Each marketing year has unique
characteristics that require price prospects to be judged based
on current market fundamentals. Historical price patterns, however
offer some parameters within which those judgments can be made.
Over the past 27 marketing years,
the highest cash price of corn in central Illinois has come
in September seven times; October, November, and January one
time; March and May two times; June and July five times; and
August three times. The two years with a November or January
price peak were "short crop" years (1980 and 1993).
Based on historical price patterns, the current price peak probably
does not represent the highest price of the year. The highest
price for the current marketing year would be expected in the
May through August time period.
Based on historical price ranges,
and assuming the lowest price for the marketing year ($1.51)
has already been established, the highest cash price for the
year has about equal odds of being below $2.15, between $2.15
and $2.50, and above $2.50. Prices at the higher level would
require a rapid recovery in the rate of US exports during the
last half of the marketing year and concerns about the 2001
growing season. Based on history, the odds of a cash price above
$3.00 are about 18 percent and would require a substantial shortfall
in the US crop in 2001.
December 2001 corn futures traded
to a high of $2.75 in May 2000 and a low of $2.2925 in August
2000. The trading range of $0.4575 will likely be exceeded over
the next year, with either higher or lower prices, or both.
Since 1973, the life of contract trading range for the December
contract has been less than $.60 only twice (1987 and 1991).
The trading range has exceeded $1.00 in 12 of those years, but
has exceeded $2.00 only twice (1973 and 1974 ).The average range
for the 1997 through 2000 contracts was $0.96.
The life of contract high for
the December contract was $2.80 or less in eight of the past
28 years (including 2000), between $2.80 and $3.00 six times,
and above $3.00 14 times. On the surface, past price patterns
would suggest that the odds of December 2001 futures reaching
a new high are about 70 percent. However, because futures trade
so far in advance, events that push prices to high levels impact
two years' prices simultaneously, so odds of new highs are likely
overstated. Realistically, the odds of December futures exceeding
$2.80 are about 40 percent.
For soybeans, the average January
basis in central Illinois strengthened from $-.40 in late September
to $-0.16 on December 1. The average farm level price cash price
was quoted at $4.92 on December 1, $0.505 above the lowest cash
price in late October. Over the past 27 years, the range in
cash prices for the marketing year varied from $0.615 (1985-86)
to $5.205 (1976-77). For the past four years, the range varied
from $1.12 to $2.325, and averaged $1.90.
Over the past 27 marketing years,
the average cash soybean price peaked six times in September;
once in October; twice in November; once in January and April;
four times in May and June; seven times in July; and once in
August. Based on historical patterns, the odds are about 90
percent the highest cash price this year will occur in the May
through July 2001 time period. Assuming the lowest price for
the year has already been established, history would say the
odds are about 30 percent for a cash price peak below $5.75,
about 40 percent for a peak between $5.75 and $6.90, and about
30 percent for a peak above $7.00. Because of the rapid expansion
in South American production, however, historical patterns may
not be a good predictor of current price patterns. Large South
American production tempers the price impact of demand surges
and shortfalls in US production. For cash prices to move above
$5.75 this year would require all of the expected increase in
European soybean meal demand to materialize and for some crop
concerns to materialize. The odds of a price above $7.00 are
likely less than ten percent.
November 2001 futures have traded
between $4.93 and $6.05. The range of $1.12 is extremely low
by historic standards, so that the range will likely be exceeded
over the next year-with higher or lower prices, or both. Based
on history, but tempered by the South American influence, the
odds of November 2001 futures establishing a new contract high
are near 75 percent. The odds of exceeding $7.00 are likely
less than 20 percent.