In a 2008 report and a 2009 article the basic question was asked: Are higher crop prices here to stay? Darrell Good and Scott Irwin, University of Illinois economists, argued that unfolding evidence suggested that corn, soybean and wheat prices were indeed likely establishing a higher (nominal) average than previously experienced. Some disagree with this conclusion. Good and Irwin revisit the evidence here to see if the data continues to support their original conclusion.
Their basic evidence depicts the average monthly farm price of corn, soybeans and wheat in Illinois from January 1947 through February 2011. Original data ended in July 2008, so now there are two-and-half additional years of monthly prices. Data is divided into three eras: January 1947 through December 1972, January 1973 through September 2006 and January 2007 to present. These periods are selected because each is thought to represent a structural shift in market conditions from the previous period, resulting in a higher level of nominal (unadjusted for inflation) prices. Using a very simple procedure to project the average level and range of prices in the new and unfolding era, it is assumed that the percentage jump between the first and second eras will be similar to the percentage jump between the second and third eras. (See graphs at the farmdoc website.)
As they say, the proof is in the pudding. Good and Irwin projected an average price level of $4.60/bu. for corn, $10.58/bu. for soybeans and $5.80/bu. for wheat. The averages for January 2007-February 2011 turned out to be $3.99/bu. for corn, $10.09/bu. for soybeans and $5.36/bu. for wheat. Their projections were all a bit too high but certainly in the ballpark. They do not see any trends in the data that lead to change the conclusion that a new and higher era of nominal crop prices is at hand. However, prices can still move to “low” levels in this new era, particularly in relation to production costs, and they can stay there for considerable periods of time.
In future posts Good and Irwin will take a look at livestock prices, livestock profitability indicators and real crop and livestock prices in the new era – previously unexamined topics.