Producer Ability to Forecast Harvest Corn and Soybean Prices

Abstract

Harvest-price expectations for corn and soybeans were obtained in January and February each year from 1991–1998. Producer expectations on average missed actual corn and soybean prices by $0.41 and $0.67 per bushel, respectively. Producer price expectations each year had a range of over $1.00 per bushel for both crops. Producer price distributions were skewed toward higher prices, and they consistently underestimated the probability of large price changes from January until harvest. U nder the 1996 farm bill, producers have increased planting flexibility, which may increase price risk. Since 1996, Virginia harvest prices for corn have ranged from $2.05 to $3.36, and soybean prices have varied from $5.61 to $7.13. The elimination of acreage restrictions, target prices, and storage programs will likely make such price swings common in the future. Price risk management strategies and supply response models developed under previous government programs will need to be reexamined. How producers form price expectations is critical to price risk management, supply analysis, and policy formulations. However, few studies are available of actual producer price expectations, the distribution of these expectations, and producer estimates of the distribution of likely price outcomes. Prior studies of actual producer expectations have reached the following conclusions. Heady and Kaldor analyzed the price expectations of 200 farmers in Iowa every six months from December 1947 to June 1949. Producer expectations missed actual annual corn prices by $0.32 in 1948 and $0.01 in 1949, and missed soybean prices by $0.39 in 1948 and $0.05 in 1949. Only 52% of individual expec-tations fell within ±10% of actual prices. In both 1948 and 1949, producer price expectations were skewed toward higher prices.