Todd's Take

When Things Turn Bearish

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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This chart shows the percent of years since 1960 spot corn, soybeans and wheat futures reached their one-year, six-month, and three-month highs. Of interest is how spot prices have a good chance of reaching their three- or six-month highs, even during bearish times. (DTN ProphetX chart by Todd Hultman)

As row crops slowly make their way toward harvest in 2019, it is fair to say the bullishness in corn prices has been deflated by USDA's 13.9 billion bushel (bb) corn crop estimate on Aug. 12. Even though there are still many unanswered questions about this late-planted crop, and no guarantee as to when or if crops will be appropriately ready for harvest, prices have shown no sign of dissent yet.

Noncommercial net longs appear to have given up their bullish hopes, having fallen from a peak of 318,221 on July 16 to just 38,944 in the latest CFTC report, dated Aug. 27. Given what we now know, which is not ironclad, I personally think a 13.5 bb crop is a reasonable guess, depending on cooperative weather to ensure a good harvest.

If true, a 13.5 bb corn crop would put U.S. ending stocks slightly below 2 bb for 2019-20 and still not have much to offer bullish hopes in corn. A genuine bullish response from corn prices this year will require some form of adverse weather before harvest, a situation currently not foreseen.

On Wednesday, I led a webinar, "Grain Marketing Tips Ahead of Harvest," which can be seen at the following link:…

In the discussion, I explained how DTN used its knowledge of seasonal patterns and trader positions to recommend forward cash sales of 50% of 2019 corn production when December corn futures averaged $4.30 a bushel. The decision looks good now with December corn at $3.58 3/4 on Thursday's close, and of course I'm pleased for DTN customers who followed the recommendations.

Unfortunately, however, not everyone took advantage of this year's higher corn prices and the following question came up during the webinar: If we missed making new-crop sales at the higher prices, what should we do now?

That's a very difficult question to answer and the first response has to be to learn from our mistakes and try not to repeat them again next year. I don't mean to be callous, but in times like these, the market gives very few opportunities for higher prices; it's important to not let them get away.

Having said that, the next best hope for getting a higher price in what looks like another bearish year of grain prices comes from understanding price rotation. Price rotation in markets is as normal as breathing is for humans. Price rotation is a back-and-forth communication between end users and producers that's essential for market function.

For grain producers, at times like these -- when corn and wheat prices have been falling -- it is easy to feel like prices will never go up again. But they often do, especially when prices are as historically cheap as they are in 2019.

For anyone cynical about price rotation, consider the following study of spot corn, soybean and wheat prices. Looking at every year from 1960 to 2018, we can see that spot prices traded at or above their three-month high in 56 out of the 59 years for corn, in 58 years for soybeans and 57 years for wheat. For spot soybeans, 1981 stands as the only year a three-month high was not reached. For spot corn, 1967, 1981 and 1998 were the only three years a three-month high was not reached.

Especially in years when prices are already low, it is reasonable to assume that a three-month high will be reached at some point. Current three-month high targets are $4.73 for December corn, $9.48 for November soybeans and $5.18 3/4 for December KC wheat.

If you want to risk a little more and shoot for a six-month high, the percentages are still in your favor. Since 1960, six-month highs have been reached in 88% of the years for corn, soybeans and wheat. No, there is no guarantee a six-month high will be reached in 2020, but past behavior suggests it is a reasonable expectation.

For those who don't want to make a sale until spot futures reach a one-year high, the odds drop significantly. Spot corn has reached a one-year high in 64% of the past 59 years, soybeans 59% and wheat 66%. In a bearish market environment such as grains are in today, waiting for a one-year high is a risky bet.

For those who missed the best selling opportunities of 2019, consider making DTN's Six Factors Market Strategies a valued part of your farm advice. We can't undo this year's mistakes, but at least you now have a Plan B before we take on next year.

Todd Hultman can be reached at

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Todd Hultman