In our newsletter of Jan. 18, it was suggested that corn and soybean prices had the dual objectives of allocating old crop supplies so as to maintain pipeline supplies at the end of the year and directing spring planting decisions.

Specifically, prices needed to ensure an increase in corn acreage and to maintain soybean acreage at the 2010 level.

For soybeans, the declining pace of both the domestic crush and exports, along with the prospects for a large increase in double-cropped acreage in 2011, suggested that soybean prices had increased enough by mid-January to accomplish the dual price objectives. That conclusion was reinforced by the improving condition of the Brazilian soybean crop and prospects for a record harvest in 2011. 

The USDA confirmed prospects for a record large Brazilian soybean crop earlier this month. Soybean prices increased another $.40 from Jan. 18 to the peak on Feb. 9. Since then, May 2011 soybean futures have declined about $1.30. The decline in November 2011 futures has been only slightly less.

For corn, the conclusion in mid-January was that prices would need to remain very strong to slow the pace of consumption and to motivate a large increase in planted acreage. May 2011 corn futures increased nearly $.60 from Jan. 18 to the peak on March 4. 

December 2011 futures increased about $.40 to the much earlier peak on Feb. 11. Corn prices have declined sharply since early March and are now back to the level of mid-January. The rapid decline suggests the market believes that corn prices have accomplished their objectives. 

The likelihood that old crop consumption has been slowed enough comes from two perspectives.

First is the macro-perspective. Recent world events are seen as a threat to the fragile economic recovery that is under way. Political unrest in North Africa and the Middle East has pushed crude oil and gasoline prices nearly 15 percent higher in the past month. Those higher prices could slow economic growth and curb commodity demand, including demand for agricultural commodities.