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Corn, Soybean, Wheat Prices Near Historical Highs

Farm Management Update, April 1996

By David Kenyon

The combination of reduced production in 1995 and record red meat and poultry production in 1996 have combined to produce high prices for corn, soybeans, and wheat. Table 1 indicates what price level is required to get in the top 5 and 10 percent level of daily futures prices since 1974 for December corn, November soybeans, July wheat (Chicago), and December cotton.

Table 1. Price comparison for selected commodities

Commodity Percent of Historical Prices
10% 5%
December corn futures $3.00 $3.50
July wheat futures 4.00 4.50
November soybean futures 7.00 7.50
December cotton futures 0.70 0.75

Current futures prices for these crops are all in the top 10 percent of historical futures prices. Wheat and cotton prices are in the top 5 percent of historical prices. Producers of these crops should be monitoring pricing opportunities daily. I would recommend selling up to 25 percent of expected 1996 production at current prices. Producers should have commodity price charts for any of these four commodities which they produce. If futures prices break the trend lines of the last 3- 6 months, producers should consider selling up to 50 percent of expected production.

With extremely small stocks of corn, soybeans, and wheat, the market is going to react violently to any substantial changes in acreage and yield expectations over the next 6 months. Producers need to develop their marketing strategy now to take advantage of these prices. Prices may go a little higher, but they will decline rapidly on news of more acres or record yields. Careful monitoring and pricing of these crops in 1996 can pay big dividends. Futures prices have only reached these levels for short periods of time 3 or 4 years in the last 20 years. Producers should not let these prices get away without doing some forward pricing.

Historically, when corn and soybean futures reach the top 5 percent of their historical distribution, prices fall dramatically over the next 2-3 years. It is possible to price the next 3 years' production at current high prices. The procedure, returns, and risks of pricing 3 years' production is explained in two publications entitled Multiple-Year Pricing Strategy for Corn (Soybeans). These will be available from your extension agent by April 15, 1996. The 3-year strategy has raised corn prices $.75 per bushel and soybean prices $1.25 per bushel compared to selling at harvest. The strategy is very aggressive and involves substantial risks. It should only be used by those who understand futures and options and the risks involved.

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