Todd's Take

One of the things that has kept me interested in commodity markets all these years has been the endless supply of surprises, unexpected twists and turns that can defy the most logical fundamental expectations. One of the biggest surprises that still wows me today was the bull market in corn that started in late 2020.

The year 2020 was when COVID-19 first arrived, and it's no exaggeration to say the world panicked. Here in the U.S., people largely stopped driving, and demand for gasoline and ethanol plummeted. By summer, the corn crop looked on its way to a harvest of 15.0 billion bushels (bb) or more and it was not unreasonable to think ending corn stocks were possibly headed to 3 bb or more. December corn hit a low of $3.20 Friday, Aug. 7, and under the circumstances, it was difficult to imagine any bullish potential for corn prices. Noncommercials in corn were holding 149,202 contracts net short on Aug. 11, 2020.

Many will remember the events of Monday, Aug. 10, when a windstorm that started in Nebraska earlier in the day turned into the infamous 2020 derecho, winds reaching up to 140 miles per hour and cutting a wide path of destruction across Iowa into northwest Illinois. It took a while for the market to understand what happened. December corn was up 2 1/4 cents on Monday of the storm, up a half-cent Tuesday and up 3 3/4 cents on Wednesday. By Thursday, traders were starting to catch on and, by Monday, Aug. 17, December corn closed at a new one-month high of $3.44 3/4.

Add a flash drought that followed the derecho and unexpectedly large purchases of corn and soybeans from China, and it didn't take long for corn's bear market to turn into a raging bull. By May 2021, the December 2021 contract peaked at $6.38. A second bull leg in early 2022 took December prices to a high of $7.66 1/4 in May of 2022. I would question the sanity of anyone who tells you they saw it coming.

The example is a few years old, but the lesson remains: Be careful about what we think we know -- the future is full of surprises. I'm not suggesting corn is about to embark on a $4.46 rally the way it did in late 2020, but recent clues do point to unexpected potential for higher prices ahead.

On Thursday, Oct. 5, December corn closed up 11 1/2 cents at a one-month high of $4.97 1/2, helped by USDA reporting 71.5 million bushels (mb) of corn export sales the previous week, the largest weekly sale since March. As I've been saying for weeks in DTN market commentary, this is the time of year when corn prices are typically making new lows. But the only new low December corn hit lately was on Sept. 19, when it briefly fell below the old low of $4.73 1/2, hit $4.67 3/4 and then promptly returned above the old support level.

Fundamentally, the case for corn prices looks bearish with USDA estimating 2.221 bb of U.S. ending corn stocks in 2023-24, the most in seven years. Brazil is also wrapping up record corn production in 2023 and has largely elbowed the U.S. out of the export market since last year. Corn's bearish USDA estimates, however, are based on a lot of assumptions that we don't yet know.

Recently, U.S. corn export sales have picked up and total commitments are up 9% in the new 2023-24 season from a year ago, thanks largely to Mexico. Fortunately, U.S. corn will go to Mexico by rail and doesn't depend on the dry Mississippi River where barge traffic is restricted again this fall.

One thing corn does have in common with 2020 is the extreme shot of hot and dry weather at the end of the season. There was no August derecho in 2023, but corn and soybean crop conditions, especially in the western Midwest, were dry from mid-August to roughly mid-September, a tough stretch for corn cobs and bean pods trying to fill out with little soil moisture to draw upon.

USDA's crop estimates in the Oct. 12 World Agricultural Supply and Demand Estimates (WASDE) report should get us closer to the final number, but harvest evidence will be even more available in the Nov. 9 report. We can and probably will keep arguing about corn's production estimate long after harvest, but the bigger concerns I have are the unknowns of a new season ahead.

Brazil is now planting its smaller, first corn crop for 2024 and who knows how that crop will turn out. We can't guess ourselves into an uncertain future, but we can pay attention to what prices are trying to communicate today. Right now, corn's stubbornness to trade lower does not agree with the market's bearish sentiment. Thursday's new one-month high is a strong bullish argument for corn's future price, the most important opinion of the day. The fact that specs are so heavily short and have already been wrong three times this year only adds to the bullish case for corn prices. I don't know how high prices will go, but you may not want to sell that freshly combined corn just yet.

**

Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on X, formerly known as Twitter, @ToddHultman1

(c) Copyright 2023 DTN, LLC. All rights reserved.