Inside the Market

Lessons From 2019

(Progressive Farmer image by Jim Patrico)

As I reflect on the corn market in 2019, two things immediately come to mind. The first is the Shirelles singing "Mama said there'll be days like this / There'll be days like this, mama said." The second is a CFTC (Commodity Futures Trading Commission) caution that was burned into my forehead long ago: "Past performance is not necessarily indicative of future results."

For younger readers, I apologize, but you'll have to Google the Shirelles for the full effect. The CFTC warning is easy to understand, but something we read so often is easy to overlook.

December corn prices started the year on a friendly note, near $4 a bushel. Noncommercials, the government's term
for large speculators, were moderately bullish, having seen cash corn prices gain nearly 50 cents from their mid-September low in 2018.

As 2019 progressed, it became clear that Brazil and Argentina were both enjoying good weather and were on track for much larger corn crops than harvested the previous year. By late April, speculators in corn were holding record large bearish bets on the futures board as December corn slumped to $3.81 a bushel.

PLANTING EFFECT

Prices slid to $3.64 in early May but then suddenly reversed higher in mid-May after USDA reported only 30% of the corn crop was planted, down from the five-year average of 66% for that time of year.

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DTN senior meteorologist Bryce Anderson and I had talked about the poor planting conditions numerous times in DTN Market Weather videos and Closing Market videos in April and early May, but it took a while for traders to take the situation seriously.

I even took a little ribbing on Twitter, as the attitude of many was not to worry because corn had always gotten planted in the past. As we now know, yes, corn did get planted in 2019, but roughly 14 million acres were planted in mid-June or later. As some would say, the corn was mudded in.

The record bearish bets among speculators lost money as December corn prices surged to a peak of $4.73 by June 17. As is often the case, specs were slow to respond, turning their big bearish bets to big bullish bets, which peaked in mid-July, as December corn prices sat at $4.40 a bushel.

SPECULATION SLIDES

Sadder to me personally was those corn producers who missed a good opportunity to make either old-crop or new-crop sales at some of corn's highest prices in five years. When asked why sales weren't made, the typical answer I received was they were influenced by someone predicting higher prices, sometimes $5.50 or $6 a bushel, the kind of advice speculators would give.

I am glad to say DTN Market Strategies recommended making forward sales on 50% of 2019 production when December corn averaged $4.32 a bushel, a good price that doesn't require any predicting ability. The speculative side of the corn market went 0 for 3 in 2019, another good reason not to look to them for marketing advice.

As 2019 repeatedly reminded us, markets are full of uncertainty and don't always behave according to the rules of the past. There may be one more surprise waiting for the markets in January, when the final crop estimate is released.

Mama said there'll be days like this.

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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