Kub's Den

As February draws to a close, farmers and market analysts are quickly calculating the average closing prices from this month for December 2018 corn futures and November 2018 soybean futures. So far, it looks like the spring reference price, which will be used in upcoming crop insurance contracts, will be $3.95 for corn and $10.14 for soybeans.

But wait, wasn't that the same reference price as last year?

Almost exactly. New-crop corn's February average this year looks about a penny cheaper than the 2017 reference price, and new-crop soybeans' February average looks about a nickel cheaper.

That shouldn't be too surprising. Both years started with La Nina climate predictions arriving at almost the exact same time and affecting worldwide production prospects in almost exact synchronicity. During both years, the corn and soybean markets both held more-than-sufficient levels of inventory, enough to keep the lid on any price rallies driven by supply concerns. The May-to-July futures spread for soybeans, which is currently at 9 cents, suggests that commercial soybean traders are calm and confident about the stored supply of soybeans lasting through the summer. That's the exact same price it was at one year ago when July 2017 futures were $10.31 and May 2017 futures were $10.22.

Not only are the weather forecasts and prices the same as last year, but even the price relationships (the futures spreads) that show the supply-and-demand outlook for the markets are the same as one year ago.

It goes even further than that.

This eerie pattern of Groundhog Day-like repetition has been in place all the way since harvest. On Oct. 3, 2017, the futures contract representing this year's crop (the December 2018 contract) offered farmers the opportunity to pre-harvest hedge corn futures at $3.95 1/4 per bushel, a full calendar year before the 2018 grain will be harvested. That was pretty similar to the opportunity they had the year before, when on Oct. 3, 2016, the new-crop December 2017 futures were at $3.84 1/4, only a 2.8% difference. The price levels have grown closer and closer since then, with the new-crop 2018 prices following almost step-for-step and penny-for-penny the same track made by new-crop 2017 prices, when plotted on the same harvest-to-harvest calendar.

So far, we've seen both years' new-crop corn contracts decline 4% during the autumn, each hitting a low on the exact same date -- Nov. 16. Then, both new-crop corn contracts bounced around during the winter, generally staying above $3.80. And then both new-crop corn contracts pursued an upward path from $3.85 in late January to approximately $4.00 at the end of February. The timing and the exact price levels are uncannily similar.

The same thing has been happening in the new-crop 2018 soybean futures contract. It has not only been tracking the same seasonal pattern that was posted by the November 2017 soybean futures contract during early 2017, but it has been posting basically the same day-to-day prices. At no point during the past five months has the new-crop soybean futures contract been priced more than 5% above or below where the similar contract was priced on the same calendar date a year prior. In fact, at Christmas, November soybean futures both closed at exactly $9.81 1/4, offering farmers the exact same marketing opportunity at the exact same time for two years in a row.

It would be astonishing if the tracks continued so predictably for the next seven months. However, if they did, let's just remind ourselves of how these markets behaved last year amid abundant inventories, some vague production concerns during the growing season and confident yield prospects through late summer and fall. In 2017, new-crop corn and soybean prices hit a high in late February that was never offered again until the heat and drought of July. Then, after that one last chance, corn prices dwindled steadily through the end of harvest and the December contract's expiration. November soybean futures expired at $9.59 per bushel.

The most commonly heard disclaimer among financial analysts is that "past performance is not indicative of future results." But sometimes, the past echoes so loudly we have to wonder -- what if this time it is?

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.

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