Inside The Market

When Prices Go Off Track

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Generally, when I speak to audiences about markets, there is seldom a time that goes by when I don’t mention the importance of paying attention to seasonal influence, especially for corn and soybeans. Not only has the seasonal influence for corn and soybean prices been remarkably consistent for the past 10 and 20 years, but the same basic pattern of higher corn prices in early June and higher soybean prices in late June has also held up for at least 50 years.

Take it from a guy who has been researching markets since Ronald Reagan was president and from all different angles, I know of no other patterns of market behavior that come close to the consistency displayed by the seasonal tendencies of corn and soybeans.

As I also like to explain, that does not mean prices stick to the script every year, and 2019 is looking like one of those years when row-crop prices have fallen below their seasonal track. In the case of soybeans, the recent bearishness of prices is understandable. After all, how often in history has the U.S. government challenged the world’s largest buyer of soybeans with a series of escalating tariffs that resulted in China responding with a tariff of their own on U.S. soybeans?

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CORN CONUNDRUM

In the case of corn, this year’s early bearish detour of prices is not so easy to explain. South American corn crops are expected to be larger this year, offering roughly 600 million bushels of increased exports to compete against. Also, trade negotiations with large U.S. ag customers such as Japan and Mexico add to investor jitters about corn.

However, U.S. ending corn stocks in 2018–19 are expected to be similar to the past two years and should not represent a significant bearish threat to prices. The difference has been heavy noncommercial selling in April that took cash corn prices to a new four-month low and left speculators with the obligation to buy back a record high 173,142 net short futures contracts as of April 23.

Just as the seasonal influence of prices has shown consistency over time, years of exceptions also have a history to learn from. Since 2000, there have only been four years when corn was either not trading higher by May 1 or high enough to offer a profitable price. All four years found higher prices later in the year than their usual peaks of early June.

Corn prices in 2001 and 2015 found higher prices that peaked in mid-July. Prices in 2002 traded higher until September, and in 2010, corn prices traded higher through the end of the year. The past does not guarantee that higher corn prices are ahead in 2019, but given the neutral fundamental situation and record bearish bets by speculators, the future looks especially risky for the short side of the market.

I still haven’t found a crystal ball, but I suspect this is one year when corn’s seasonal peak will come later than usual.

> Read Todd’s blog at about.dtnpf.com/markets.

> You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

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