Inside the Market

By Todd Hultman, DTN Lead Analyst

Among DTN's Six Factor Market Strategies, seasonality for corn and soybeans is the one factor that comes closest to single-handedly qualifying as a risk-management strategy all by itself.

Unlike any other method or technical indicator I am aware of, a simple plan of owning cash corn in late November (as most producers do) and selling in late May has yielded positive gains in 19 of the past 26 years, earning a total hypothetical gain of $9.30 a bushel, or roughly 36 cents per year on average.

This past year saw DTN's National Corn Index climb from $3.38 on Nov. 30, 2018, to $4 by the end of May 2019, a 62-cent gain over the six-month period. Of course, markets are complicated, and we can't blindly assume corn prices will rise again in 2020--but the tendency is strong.

SEASONALITY CONCERNS

If there are concerns about seasonality not working in early 2020, the first suspect would be related to harvest selling this fall. Because of this year's unusually difficult planting conditions, the U.S. is going to have a smaller corn crop in 2019 and harvest it later. Just how much smaller has yet to be determined, but the first step needed to make seasonality work is harvest-related selling.

At the time of this writing, it looks like the U.S. is going to carry over 2.4 billion bushels (bb) of old-crop corn into the new season and have possibly 13.6 bb of new production (my estimate, not USDA's). Barring an early freeze or other production hit, there should be enough corn available this fall to depress prices as typically happens at harvest.

The second threat to seasonality is the unpredictable events that take place in the first five months of 2020. This is where it pays to also have the help of DTN's other five market factors.

In early-May 2019, heavy noncommercial selling pushed corn prices lower encouraged by big harvests in Brazil and Argentina. For the first four months and 10 days of 2019, corn prices weren't showing any seasonal gain, but DTN's Market Strategies held off from recommending sales, seeing that noncommercials had put themselves in a vulnerable position.

As we now know, excess rain at planting time caught noncommercials in a bear trap, and short-covering quickly emerged in the second half of May. Corn's bullish seasonal impulse proved out again.

For soybeans, the seasonal peak generally comes at the end of June, and their 20-year track record has also been impressive, showing positive gains in 19 of the past 26 years. However, owning cash soybeans from Nov. 30 until June 30 has not performed well for the past three years. Most recently, it is no secret the trade war with China has significantly disrupted soybeans' typical price patterns, and trade concerns remain an issue heading toward 2020.

In the case of soybeans, it is difficult to expect normal seasonal price patterns in an abnormal trade situation. Corn, on the other hand, has shown positive seasonal gains the past four years and should have a good chance to again this year. As always, stay tuned to DTN as we monitor the events that unfold.

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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