Are Large Price Swings in Corn and Soybeans Finished or Just Beginning?

Are Large Price Swings in Corn and Soybeans Finished or Just Beginning?

The recent and dramatic swing upwards in the price of corn and soybeans has many caught off guard. There is a simple rule of thumb Darrel Good from the University of Illinois uses when thinking about each and every crop year. Start the marketing plan by plugging in a normal crop, then adjust as facts about the summer weather pattern become available.  

There is a much agreement that a strong El Niño is a precursor to a warmer summer in the Midwest, and very dry conditions at some point in June, July or August. Although, that part isn't abundantly clear. This is followed by a drought in South America. It's just a forecast, but pretty solidly based on actuals. Solid enough that Darrel Good is willing to take a marketing stance not only for this year, but next.

Good: "We have previously made the case for elevated risk of yields falling below trend value this year as summer weather is influenced by the fading El Nino episode. Even after the recent rally, new crop prices may understate that risk. It will not be surprising to see periods of bottled prices continue through the summer. Now is the time for producers to establish targets for pricing a portion of both the 2016 and 2017 crops."

Good means corn and soybeans. The price of both crops are experiencing a sharp rally this month. There are a number of contributing factors; excessive rainfall in parts of Argentina has likely resulted in a measurable, but unknown, reduction in the size of the soybean crop due to flooding; heat and dryness in Brazil has threatened the size of the corn crop in those areas that produced bumper crops the past two years; and a weaker U.S. dollar has raised expectations for increased export demand for U.S. corn and soybeans.

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