December corn has taken quite a hit recently, falling from a high of $5.94 on Aug. 12, the day the bullish August crop production report was released, to as low as $5.08 ths week. This is not that far from the swing low of $5.07 seen on July 9 and the low of $5.00 on May 26 after hitting a contract and eight-year high of $6.38 earlier that month on May 9.
We were curious (as are most end users) to see how low December corn gets during the harvest period and when that low will occur. This graphic shows the percent the low made in December corn is below the yearly average on the left-hand axis, while the September USDA stocks-to-use ratio is plotted on the right-hand axis. We also include in the yellow circle the days after Jan. 1 that December corn makes its low. The study period is from the year 2000 to this year 2021 from Jan. 1 to Nov. 30.
Some observations include the fact that the higher the new-crop stocks-to-use ratio is (as indicated in the September WASDE report) the later in the year December corn usually makes its low. For instance, the September 2001 WASDE report showed the 2001/02 corn stocks-to-use ratio at a very high 22.6% and the low that year was made 331 days after Jan. 1 or around November 28. Other years of stocks-to-use ratios projected at 15% or higher as seen in the September WASDE report has December corn making its low usually after Aug. 31. Conversely, years of low stocks-to-use ratios usually have December corn making its low for the year earlier in the season rather than later, often before June 30.
A look at the low as a percent of the yearly average shows a wide range. In 2015, the low for December corn between Jan. 1 and Nov. 30 was just 8.8% under the yearly average; in 2008, the low was 40.4% below the year average. For all years 2000-2020 the low tends to be 16.8% under the yearly average. For this year, based on the average trade guesses for old- and new-crop corn, ending stocks and the production estimate we calculate that the trade has the 2021/22 corn ending stocks-to-use ratio pegged at 9.4%, which would be the lowest September WASDE stocks-to-use ratio since 6.5% in September 2013 for the 2013/14 season. Interestingly, despite that low stocks-to-use ratio, the low for the December 2013 contract came rather late in the season at 312 days past Jan. 1 or around Nov. 8 and that low was 18.9% under the yearly average. The low for the December 2021 contract this calendar year came very early on Jan. 19 or 19 days after Jan. 1 at $4.40 which is 17.1% below the Jan.1 to Sep. 7 average of corn prices this year. We do think that low will hold but we could see the December 2021 contract continue to fall and using that 2013 example when prices got as low as 18.8% below the average would project to a low of $4.17. A more likely scenario would be December corn moving to the top end of the trading range that persisted from 2014 to 2020 when corn prices oscillated between $3.00 and $4.50 and, given a still historically tight stocks-to-use ratio, we feel the low should come earlier rather than later in the harvest period, say from late September to early October as opposed to a November/December low.
Joel Karlin, Western Milling
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