The Relationship between Stocks-to-Use and Corn and Soybean Prices: An Alternative View

The release of the USDA’s Prospective Plantings report provides the first survey-based information for forming expectations about the size of the 2016 corn and soybean crops. Production expectations can now be used to project the 2016-17 U.S. marketing year balance sheets—supply, consumption, ending stocks, and marketing year average price. The surprisingly large increase in corn acres to 93.6 million acres intended for 2016 creates a particularly strong interest in corn price prospects. Many are asking just how low corn prices can go if the intended level of planted acreage and trend yield are realized. In an attempt to quantify marketing year price expectations based on supply and consumption balance sheet projections, we have previously examined the variation of the marketing year ending-stocks-to use ratio as an explanation of the marketing year average farm price of corn and soybeans (farmdoc daily, April 9, 2015; May 14, 2015). In today’s article, we review and update our previous analysis of the relationship between the marketing year ending stocks-to-use ratio and the marketing year average farm price of corn and soybeans in the U.S. We then present an alternative model for the relationship between the stocks-to-use-ratio and average farm price that we believe may provide a more accurate representation of the true relationship.