Crop Pricing History & The Inverse


The price of corn today is higher than what it is likely to be in the fall. At least that’s the case right now and it has many farmers wondering whether they should hold off on making some new crop sales in hopes that fall prices will go up. History, however, is not on their side.

Here’s the question University of Minnesota Agricultural Economist Ed Usset says corn and soybean farmers in the United States should be asking themselves, “what do higher prices do, normally”.  Normally high commodity prices slow demand and spur supply. Those two things cause price to go down says Usset. “In the case of corn, 13 years where there has been a sizable inverse from July to December on February 1. If you look at those 13 years since 1980, 12 of the 13 years were trading lower at harvest. The only exception, of course, was 2012. 2012 was a drought year.”

The story for soybeans is very similar. “I focused on 14 years since 1980 with a strong inverse on February 1. I’ve eliminated seven other years with a small inverse – 2 cents, 5 cents, 12 cents, 18 cents. We are talking about a $2.00 inverse right now from July to November. Now, we’ve had other years with 50 cents, even upwards of $1.50, but of those 14 years, twelve of the fourteen went lower.”

The exceptions were 1996 and 2003. It’s not that the prices dropped like a rock, or that there wasn’t time in the bulk of the inverse years to make a new crop sale at a higher price says Usset but that in the end high old crop prices rationed demand and spurred supply. Low demand and larger supplies equal lower prices. “I would say, in general – take away the drought year option, not that that couldn’t happen, I’d say just as often as not you probably want to wait a few months. There are examples of an early in the year high but more often than not in June or early July is a better time.”
Ed Usset is an agricultural economist at the University of Minnesota.