December 12, 2012

Range in 2013 Market Year Average Prices for Soybeans Suggested by History

Current Chicago Mercantile Exchange (CME) futures prices suggest that market year average (MYA) soybean prices for 2013 will be near $13.00 per bushel. Obviously, prices could vary from $13.00. In this post, historical price changes are used to evaluate possible 2013 MYA prices. Historical price changes suggest there is an 11% chance of the MYA price being below $10.00 and a 19% chance of MYA price being below $11.00 per bushel.

Historical Price Changes

MYA prices are national, cash price farmers receive for soybeans from the months of September to the following August. These MYA prices are compared to average settlement prices for the November Chicago Mercantile Exchange futures contracts in the December prior to expiration. These futures prices serve as a way of predicting the MYA prices.

Percent changes are calculated for the MYA soybean prices and the futures prices. To illustrate take the 2011 MYA price is $12.50 per bushel, which represents the price from September 2011 to August 2012. The average settlement prices of the November 2011 CME contract in December 2010 is $12.34. The $12.50 MYA price for 2011 is 1% higher than the $12.34 futures prices (1% = $12.50 MYA price / $12.34 futures price - 1).

Percent changes between 1975 through 2011 averaged -1% (see Figure 1), meaning that the MYA prices average lower than the December futures prices. Lower MYA prices than futures prices reflect the fact that there typically is a basis between cash and futures prices.


fig1.jpg


Larger percent differences exist between these futures prices and MYA prices (see Figure 1). MYA prices were the furthest below futures prices in 1977 (-54%), 1975 (-30%), 1998 (-27%), 1981 (-26%) and 1999 (-21%). MYA prices were the furthest above futures prices in 2003 (44%), 2007 (41%), 1976 (35%), and 1983 (33%).


Historical Variability and 2013 MYA Prices

Historical variability can be used to gain a feel for the range of prices possible in 2013. Currently, the November 2013 futures contract is trading around $13.30 per bushel. Given the average change between the MYA and futures contracts from 1975 through 2011, the expected 2013 MYA price is $13.17 ($13.30 futures price x ( 1- 1% average decline)).

Given history, there is a range of possible prices. If the largest price declines occur, 2013 MYA prices would be:

  • $6.12 if a year like 1977 occurs,
  • $9.31 if a year like 1975 occurs,
  • $9.71 if a year like 1998 occurs,
  • $9.84 if a year like 1981 occurs, and
  • $10.51 if a year like 1999 occurs.

Conversely, if some of the largest price increases occur, 2014 MYA prices would be:

  • $19.15 if a year like 2003 occurs,
  • $18.75 if a year like 2007 occurs,
  • $17.96 if a year like 1976 occurs, and
  • $17.69 if a year like 1983 occurs.

Historical price changes can also be used to gain a feel for the chances of low prices. Percentage changes suggest that 2012 MYA prices:

  • Will be below $10.00 in 4 out of 37 years, or 11% of the time.
  • Will be below $11.00 in 7 out of 37 years, or 19% of the time.
  • Will be below $12.00 in 13 out of 37 years or 35% of the time.
  • Will be below $13.00 in 19 out of 37 years, or 51% of the time.

Summary

Historical price changes suggest that a wide range of prices are possible in 2013. A price below $11.00 per bushel is possible. Some of these are low and could signal lower net farm incomes. While not likely, prices changes outside of historical changes also are possible.

A post examining 2013 corn price variability is available here.

Issued by Gary Schnitkey
Department of Agricultural and Consumer Economics
University of Illinois

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