US corn, soy prices following expected post-drought patterns

Many numbers back to pre-drought levels, says agricultural economist

U.S. corn and soybean prices have generally followed the expected pattern experienced in other “short crop” years, with prices peaking near harvest and returning to pre-drought levels later in the marketing year, according to University of Illinois agricultural economist Darrel Good.

“For old-crop corn prices, July 2013 futures peaked at $8.24 on August 10, 2012, nearly $3.00 above the June 2012 low,” said Good. “That contract is currently trading near $6.50, well below the peak, but still above the pre-drought level. Due to an inverted price structure, spot-cash prices have been above July futures in much of the Corn Belt since January 2013, and that strong basis continues.  

“Prices remain generally high as it is not yet clear that the small crop of 2012 has been sufficiently rationed,” he said. “Exports remain weak, but ethanol production is rebounding from the low levels in the first half of the marketing year. Uncertainty still surrounds the magnitude of feed and residual use of corn.”

For new-crop corn, prices have completed the transition back to pre-drought levels, according to Good. December 2013 futures peaked at $6.64 on September 10, 2012, about $1.50 above the June 2012 low. That contract is currently trading just over $5.15, about $0.05 above the summer 2012 low. Soybean prices have behaved similarly to corn prices but are still well above pre-drought levels. July 2013 futures peaked at $16.05 on Sept. 14, 2012, about $3.85 above the June 2012 low. That contract is currently trading near $14.60, still in the upper half of the trading range of the past year. 

Due to the ongoing futures price inversion, spot-cash prices in the Corn Belt have been above July futures all year, with basis levels strengthening in recent weeks. Old-crop prices are being supported by prospects of a minimum level of year-ending stocks and the need for consumption to remain under the pace of a year ago.

For new-crop soybeans, prices are closer to a complete transition back to pre-drought levels, said Good. November 2013 futures peaked at $14.10 on September 14, 2012, $2.70 above the June 2012 low. That contract is currently trading near $12.25, $0.85 above the low of a year ago and $1.85 below the peak.