While we're usually more concerned about what's going to happen to next week's grain prices than we are five years or more down the road, it's interesting to take a look back and analyze the long-term cycles in commodity prices. Corn has had a very dominant cycle since 1900. The chart below shows the consistency of the pattern.
First, it's hard to believe that corn prices actually hit $2.21 as far back as 1917. From that peak it took 15 years to make the next major bottom. It took 31 years before the next major peak occurred in 1948 at $2.84.
In looking at the tops, the next major high came in 1974, which took 26 years. Twenty-two years later, in 1996, corn prices hit $5.25.
From peak to trough, the 1948 high was followed by a low 12 years later, and the 1974 high was followed by a low 13 years later.
Peaks And Troughs Getting Shorter
Every time a major high and low have occurred the cycle has been a little shorter than the previous one. From peak to peak, the range has been 31 years, then 26 years, followed by 22 years. Let's assume the next peak occurs in 18 years — that would put us at 2014.
Can't wait that long? Sorry, but that's what the long-term cycles would indicate. What's more exciting, however, is how high the next peak might be.
Notice that the 1948 peak was 29% higher than 1917; the 1974 peak increased by 40% and the 1996 peak by 32%. If the next major high is 30% higher than 1996, corn prices are headed to $6.83.
Frankly, that's too far off for me to worry about now. It may sound insane, but so did $5.25/bu. when we discussed that in the early 1990s.
What's more important to most of us now, however, is whether or not corn prices are in the process of making a major long-term bottom. In years' past, time from peak to trough has ranged from 12 to 15 years. But just like the peak-to-peak cycles, I'm going to make an assumption that the peak-to-trough cycle is also getting shorter.
If that's the case, let's assume that the next major bottom occurs 10 years from the last top, which would be in the year 2006. Whether or not 2006 is the exact year, the fact is that grain prices should be close to the long-term major bottom.
More importantly, in looking at the chart below, you'll notice that the long-term trend support area comes in at approximately $1.60/bu. As the cycle progresses, the highs continue to get higher and the lows continue to get higher as well.
As I write this column, cash corn prices in central Illinois have just dropped under $2/bu. As a buyer, that would tell me I should start accumulating cash corn on any movement under $2/bu. As a seller it's time to be patient.
The most bearish aspect of the corn market this year is the amount of old-crop corn being moved late summer/early harvest.
That should result in a very early bottom in cash corn prices that will be followed by a sharp improvement in basis as the market moves into the November/December time frame.
These could be some of the lowest corn prices for the next several years. Storage will pay big dividends for this year's harvest.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.