By Jon Scheve, Superior Feed Ingredients, LLC
Last week, corn finished down 15 cents and was nearly 30 cents off the highs from the previous week. Harvest pressure may finally be hitting the corn market. The commercial short positions in the market, which the trade usually views as farmer sales, are at the lower end of the range of the last 10 years. This should be concerning to unsold producers because it means farmers are way behind on sales and any futures rally may be met with increased sales pressure. It could also mean the low for the marketing year is not in yet.
A historical look at December corn lows
In 8 out of the last 16 years December corn has hit a low for the calendar year after Sept. 1. Half of those lows occurred in September and the other half of those lows came in November as seen in this chart:
So far, the low for the year was on Sept. 19 at nearly $4.68. The concern moving forward is that December corn could still find the low for the year in the month of November. Even if it does not find a low in November, history shows that in 2 of the years when the September low held for the year, corn’s value by late November was within 20 cents of that low. The other two years had good rallies, but the lows in those years were in the lower $3 range before the rallies began.
In the last 33 years, corn’s low for the year happened the most in November at 33% of the time.
Soybean price potential
Beans remained range-bound this week, closing only 5 cents lower than last week but up 10 cents from two weeks ago. With harvest nearly complete and beans stored away, it could be a while until farmers are willing to sell.
Reasons to be bullish beans:
- U.S. export estimates are forecasted to be near trade war levels.
- Current carryout projections are the tightest in 7 years.
- Soybean meal rallied almost 20% in the past month because Argentina is expected to have low supply until March.
- U.S. processors will likely be running at full capacity and need a lot of beans to make up for Argentina’s short falls.
- China may also need to buy additional beans to crush to make up for Argentina’s lack of meal production as well.
- Recent rains have caused the Mississippi river to rise slightly, which should help lower freight costs and make the U.S. more competitive globally.
The main reason to be bearish beans, is that world stocks are ample. Brazil had a monster sized crop and this may lead to less of a need for U.S. exports longer term.
Analyzing the soybean/corn ratio
The corn and bean markets may take different paths after harvest. Corn’s carryout looks burdensome, and farmers are extremely under-sold compared to other marketing years. It seems that farmers have sold nearly an average amount of beans for this time of year, despite their carryout being much tighter. This could cause the soybean to corn price ratio to trade at unusual levels.
The soybean-to-corn price ratio is factored by dividing soybean’s futures value by corn’s futures value. In the last 20 years, there were only four marketing years when the price of beans was 3.2 times the value of corn or more. See the chart below:
The years that saw a ratio above 3.2 were years that had tight bean supply or extremely burdensome corn reserves. The current carryout estimates point to the possibility of both burdensome corn stocks and potentially tight bean carryout in the United States.
If the 3.2 ratio happens again, corn could stay at $4.80 while beans trade above $15. Even if corn fell to $4.40 next month, at a 3.2 ratio $14 beans is still possible. And if the ratio expanded to 3.4 as has happened in other years, $15 is still theoretically possible if corn would continue to trade lower.
If you would like to know more about this type of information or your local markets for corn and beans reach out to me.
Please email email@example.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.