Todd's Take

Last Call for Row Crops?

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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The chart above shows significant difference in the behavior of Dec corn prices in the first four months of the year versus the following five. Events of the May to September growing season have taken prices a different direction in 13 of the past 18 years. (DTN Chart)

We are just past mid-April, and sensing the warmth of a new growing season across the Midwest, we have to say that row-crop prices have done fairly well, considering last fall's big harvests. Since the end of 2017, Dec corn is up 20 1/4 cents and Nov soybeans are up 52 1/2 cents.

The surprise of Argentina's drought in early 2018 shouldered most the blame for corn and soybeans' higher prices, but we also have to note that seasonal indices anticipate higher prices for both after early October, until early June for corn and until early July for soybeans. So far, row crops' higher prices have been right on their traditional schedule.

While the general trend of the seasonal influence is a helpful guide, the specifics of each year always have their own particular twists. As pointed out in last Tuesday's column, "High Time for Corn, HRW Wheat?" (…) spot corn prices have already reached last year's high and are now showing signs of losing upward momentum on weekly charts. After last week, the same could be said for Nov soybeans.

There is another factor at this time of year, which I described three years ago in a column titled, "Buckle Up." That particular piece was about how Nov soybeans show distinctly different price behavior in the first four months of the year from the following five months as crops get into the ups and downs of the growing season.

Not only do Nov soybean prices tend to show bigger moves from May through September, but prices also tend to take a different direction from their earlier start. Price direction differed between the two periods in nine of the past 15 years.

Looking at Dec corn prices, we see the same tendency at work as found with Nov soybeans. Over the past 18 years, Dec corn prices moved 76% farther on average in the five months after May as they did in the first four months of the year. Also, like soybeans, Dec corn prices from May through September went opposite to their earlier direction in 13 of the past 18 years.

Fundamentally, the research highlights an important feature to keep in mind for corn and soybean prices this time of year: No matter what prices do before May, it's a new ballgame after the growing season begins. If the past pattern holds up, both corn and soybean prices are about to get more volatile and will likely be lower at the end of September. For any producer thinking about buying a put option, market volatility tends to favor a time before May.

Of course, there is nothing about history that rules out the possibility of a surprise, so we will continue to monitor markets through the season with a keen eye on weather. Currently, row-crop conditions are off to a good start with temperatures warming and soil moisture generally favorable across the Midwest.

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Todd Hultman