Neither the futures market nor the government provide spot-on forecasts of crop prices in the long term, write economists Scott Irwin and Darrel Good at farmdoc daily ahead of the March 31 deadline for grain and soybean farmers to choose a crop subsidy program. The 2014 farm law gives growers two options; Price Loss Coverage with target price payments or Agricultural Risk Coverage, which covers up to a 10 percent decline in crop revenue. Several Web-based tools have been created to help growers decide which program is best for them but an unresolved question is what level of prices to expect.
Irwin and Good say USDA’s long-term forecasts and projected futures market prices both have records of large errors compared to actual prices. “(I)t is exceedingly difficult to forecast marketing year average corn prices very far into the future,” they say because of unforeseeable events like droughts or recessions. Given the difficulty of forecasting prices, they said growers could enroll some land in each program to get better average coverage.
“Another response is to frame the question differently by focusing on the average corn price that might be expected over the 5-year life of the current farm bill. All available current forecasts suggest that prices will average near to slightly higher than current prices,” say Irwin and Good.