Todd's Take

On Jan. 12, USDA estimated the highest U.S. ending corn stocks in five years and the highest ending world stocks in six years. A summer of long stretches of hot and dry weather turned out to be no match for timely rains and today's genetic seeds.

Corn surpluses and cheap cash prices are back after a three-year absence, and no one knows how long it will be before the next bull market comes along. On Thursday, Jan. 18, DTN's National Corn Index ended at $4.20, well below USDA's estimated cost of production near $5.00 a bushel.

The transition from a bullish corn market to a bearish corn market started in late February 2023 when USDA anticipated a 15.085-billion-bushel (bb) crop and 1.887 bb of ending stocks. USDA's Ag Outlook Forum in February isn't normally considered a market-moving event, but last year's forum triggered concerns many were already having and started the long descent in corn prices.

Fast forward to USDA's Jan. 12, 2024, estimates and the market now looks even more bearish than anticipated. According to USDA, a 15.342-bb corn crop will result in 2.162 bb of U.S. ending corn stocks in 2023-24. The estimated ending stocks-to-use ratio of 14.8% is also the highest in five years and reminds us of a time in the U.S. between 2014 and early 2020 when corn's ending stocks-to-use ratios were similarly high.

A big difference this time around is input costs are 30% higher than they were then. Cash corn prices between roughly $2.90 and $4.00 a bushel before 2020 translate to a range of $3.80 to $5.20 today.

If you notice the chart that accompanies this column, you can see the seasons between 2014-15 and 2019-20 had bearish ending stocks-to-use ratios between 12.6% and 15.7%. Also notice how cash corn prices actively traded higher and lower during the six seasons, above and below their one-year averages.

The interesting part is that despite the heavy surpluses, there were times when cash corn prices traded 9% to 15% above their one-year moving averages, offering decent selling opportunities within the midst of bear markets. In 2019, relentless rains at planting eventually sent cash corn to $4.45 a bushel, a 28% premium above the one-year average. 2020 is a good reminder that generous premiums are not guaranteed. The arrival of COVID-19 sent corn prices plummeting, at one point falling 22% below their one-year average.

The difficult part about picking a price target in early 2024 is prices haven't been at their new low levels long enough yet to establish a stable one-year average. We can estimate, though, where the new one-year average should fall. Between 2015 to 2019, cash corn prices averaged $3.45 a bushel. Adjusting for 30% higher costs, a new one-year average of $4.48 a bushel would be a reasonable guide for this new season. Based on previous premiums and depending on how cautious you want to be, an early price target of $4.80 to $5.00 would be within the realm of possibility.

Of course, Plan A was to follow DTN's Six Factors Strategies and forward sell 50% of 2023 production back in February and March when prices first started falling. The final 25% sale was recommended on Jan. 2. I suspect from USDA's finding of 7.83 bb of corn stored on farms as of Dec. 1, many are still hanging on to their 2023 corn. For Plan B, you may also want to set a time deadline or buy something like a July $4.00 corn put to protect from a worst-case scenario.

I can't turn a bear market into a bull market, and I won't pretend it's going to be easy to get a better corn price in 2024. For those who missed out on making earlier sales, there is still a sliver of hope. The hope isn't based on outguessing the size of Brazil's corn crop or any of the fundamental factors we think we know.

Hope for a better corn price is based on the perennial fact we never know for sure what lies ahead or where prices are headed. It is that perpetual uncertainty that keeps traders jumpy, feeds price volatility, and -- sometimes -- creates good selling opportunities in bearish market situations. Thanks to past bear markets, we know getting a decent price is possible -- just not every year and not for long. If you do some homework and have orders in ahead of time, the market just may give a second chance.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com .

Follow him on X, formerly Twitter, @ToddHultman1

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