Inside The Market

A Bearish Time Of Year

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
Connect with Todd:
Image by Getty Images

Typically, when assessing grain markets, many start with USDA’s estimates of various supply and demand factors for each commodity to come up with an ending stocks-to-use ratio. This ratio is a relative measure of surplus grain that allows us to compare prior years and get a rough estimate of where prices are expected to trade.

When I say “rough estimate,” I’m not kidding, as we often see vastly different prices related to the same ending stocks ratios for different years. Using cash corn prices indexed for inflation during the past 20 years, the current U.S. ending stocks-to-use ratio of 11.5% has shown prices near that ratio ranging from $2.34 to $6.05 a bushel.

For statisticians, this way of assessing corn prices has a correlation of determination (R squared value) of 55%. In other words, the relationship between cash corn prices and USDA’s ending stocks-to-use ratios is not well-defined and certainly not precise enough to bet the farm on.

And, yet, measuring supply and demand is considered by many to be the gold standard of how to predict prices. If the traditional work of supply and demand only explains 55% of the changes in corn’s price, what explains the other 45%?

Market analysts differ, but I see two plausible candidates. First, corn, soybeans and wheat prices not only have high correlations to each other, but they also show high correlations to other non-ag commodity prices.

The same economic forces that affect other commodities like gold, crude oil and copper also exert significant influence on grain prices. This may sound strange, but from 1997 to 2017, corn prices showed higher statistical correlation to those three non-ag commodities than they did to their own ending stocks-to-use ratios.

The other source of price movement for grains is what I refer to as market mood or sentiment. Old-time economists assumed people were mostly rational, but, more recently, that view has been challenged.

Daniel Kahneman, an Israeli-American psychologist, was awarded a share of the Nobel Prize in Economic Sciences in 2002, largely for a body of work which identified more than 40 tendencies of poor decision-making in all of us. The prices that we see quoted in markets can be the result of significant fundamental change, but they are also a reflection of our collective humanity, short-sighted warts and all.

Unless some surprise takes place, 2018–19 will be the fifth consecutive year that ending U.S. corn supplies will be within a few hundred million bushels of two billion. The fundamentals have not changed much, and neither has corn’s overall price range.

Within that time, however, the market’s mood has swung up and down with cash prices ranging from less than $3 to near $4. The current mood is neutral to bearish for corn, as it often is this time of year. But, if the past is any guide, the seasonal mood is likely to change by early summer--even if the fundamentals don’t offer much help.

Read Todd’s blog at



Todd Hultman