At times like these, when grain piles are high and farm incomes are falling, it can be easy to feel like things will never get better. The truth is there is no reason to believe that 2017 will not provide another year of good growing weather, but at this moment no one can say for sure.
As long as we are all adults and understand that yes, grain prices can go lower again in 2017, here are a few things to note from a longer-term perspective.
Starting with corn, four consecutive years of good growing weather have taken spot corn prices down 54% the past 48 months. In fact, when spot prices closed at $3.01 1/2 at the end of August, the four-year price change hit a minus 62%. Going back to the presidency of JFK, corn has only had one four-year drop that severe and it happened in June 2000, coming off of a big spike in 1996. Even the largest four-year decline of the 1980s only reached 55% in August of 1987.
If we look at corn yields, the longest stretch of consecutive yields above trend in modern history happened in the seven years between 2003 and 2009. So yes, it would not be remarkable to see another above-trend corn yield in 2017. However, corn prices respond to many factors other than yield.
Looking at spot corn prices, the longest stretch endured without reaching their one-year high in modern history was 4 1/2 years ended in February 1988. In the current bear market, corn's streak already ended at 35 months as spot corn reached its one-year high in July 2015 and again in June 2016. The opportunities did not last long, but they were there.
The current king of bear markets is wheat where Chicago's spot prices are down 53% from where they stood four years ago and near their lowest prices in 10 years. At the end of August, the four-year decline in Chicago wheat stood at 59%, a drop that has only been approximated twice since the 1960s. The other two were a 58% drop in February 1978 and a 62% drop in April 2000.
Except for one brief flicker in May 2014, Chicago wheat prices have not seen their one-year high in 52 months. This is eerily reminiscent of the 56-month stretch from April 1996 to January 2001 when prices finally rang the one-year bell at $2.85 1/2. Since the 1960s, there is no other time that comes close to these two long downward slides in wheat.
As the lights dim on the bear markets for corn and wheat in 2016, it is fair to ask: can it get much worse than this? Our answer has to be yes, it can -- there is still downside risk in grain markets. But if it is any comfort, previous bears have rarely lasted this long or fallen this hard.
Todd Hultman can be reached at email@example.com
Follow him on Twitter @ToddHultman1
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