Todd's Take

As I write this after the close Thursday, Feb. 15, the prices of March corn, March soybeans and March KC wheat are down again for the week, continuing to extend what have already been significant losses in 2024. March corn ended Thursday at $4.17 3/4 and March soybeans ended at $11.62 1/4, the lowest spot closes in three years for each. March KC wheat closed shop at $5.75 3/4, the lowest spot close in two years.

If we pair USDA's cost of production estimates with last year's yields, the national average cost of raising corn in 2024 is estimated at $4.90 a bushel, the cost estimate for soybeans is $12.15 a bushel, and for all U.S. wheat, USDA has a generic cost average of $8.45 a bushel. Dealing with production cost estimates is always a bit tricky as all farms are not equal. Differences in levels of debt and land ownership, labor arrangements and productive qualities of the farm all play important roles. However, generally speaking, I don't know any producers who are pleased with this week's prices. As one seasoned farmer said to me in Louisville, Kentucky, this week, "$4.20 (corn) won't cut it."

For corn specifically, it wasn't that long ago we were in a similar boat. The years from 2014 to early 2020 had similar ending supply estimates and spot corn prices traded a range from roughly $3.00 to $4.50 a bushel during that time. The main difference between then and now is input costs for growing corn are 32% more expensive in 2024. If we factor in today's higher costs, the old $3.00 corn price translates to roughly $4.00 in today's market. Fundamentally speaking, spot corn prices should be near long-term support, but there are other factors at play and we can never be too certain about where the actual bottom will be.

One concern I have for crop prices in the present situation is the eagerness of specs to keep adding to their already large net-short positions. A famous psychologist, B.F. Skinner, pointed out a long time ago that if you reward a rat with a pellet of food each time he trips a lever, the rat will keep tripping the lever. If you shock a rat after tripping a lever, the rat will eventually stay away from the lever. Many of us who are parents don't need a degree in psychology to know that Skinner was on to something.

The part that concerns me about this week's selling in grains and oilseeds is that for months specs have been rewarded for hitting the selling lever and I don't see any sign yet of electrical shock. Last Friday's CFTC data showed specs were holding 428,523 contracts net short for a combined position in corn, soybeans, and Chicago wheat as of Feb. 6, the largest such total on record.

The last time specs held anything close to that large of a short position was in April 2019, shortly before the market was surprised by one of the wettest planting seasons on record. Prices quickly reversed higher in May 2019 and traders scrambled out of their short positions by the end of the month, unprepared for the substantial jolt that hit them.

Not only was there no bullish shock this week, USDA rewarded traders with a tough bearish outlook Thursday for the new 2024-25 season. USDA's new estimate of 2.532 billion bushels (bb) of ending U.S. corn stocks is the largest since 1987-88 and is based on a yield of 181 bushels per acre (bpa) and 91.0 million planted acres. It is a completely theoretical estimate at this point, which suggests corn prices do have bearish potential, but we are still 18 months away from the end of the new-crop season and a lot could happen between now and then.

USDA's new ending stocks estimates for soybeans and wheat were also bearish, but to lesser degrees. USDA estimated 435 million bushels (mb) of U.S. ending soybeans stocks for 2024-25, the highest in five years and up from 315 mb in 2023-24. For all U.S. wheat, USDA estimated 769 mb of ending stocks in 2024-25, the highest in four years and up from 658 mb in 2023-24. By Thursday's closes, bearish specs received their food pellets as March corn was down 6 1/2 cents, March soybeans were down 8 1/4 cents and March KC wheat was down 12 cents.

It is not uncommon for USDA to propose bearish estimates in February and, in fact, last year's Ag Outlook Forum is an example of where USDA's bearish estimates triggered a significant drop in prices of both corn and soybeans that lasted until May. A year ago, however, spot corn prices near $6.50 and spot soybean prices near $15.00 had a lot to lose. Today's prices are already near levels where we would normally expect long-term support.

I can't guarantee crop prices won't go lower in 2024, but timing and context are important. If it were July or August and the recent selling was accompanied by beneficial rains, the large bearish bets in the market would be understandable. However, here in mid-February, there are still a lot of poker cards on the table that have yet to be turned up. One of those cards is Brazil's corn crop, off to a quick planting start after the soybean season received less rain than usual.

There is no denying bearish specs are currently on a hot streak and it has to be tempting to keep hitting that lever. Time will tell if they are correct in their bearish assessments or if success has made them overconfident. All I can say for now is that prices are fundamentally cheap by historical standards and there is still a lot about 2024 we don't yet know.

**

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 Twitter, @ToddHultman1

(c) Copyright 2024 DTN, LLC. All rights reserved.