Are yields going higher?

By Jon Scheve, Superior Feed Ingredients, LLC 

Corn had been trading sideways between $4.77 and $4.89 since Aug. 11 until Oct. 6 when it never dropped below $4.92.

Technical traders have suggested the seasonal lows are already in for fall. They say the breakout and corn struggling to trade below $4.75 are reasons why higher values should be coming soon. 

Seasonal traders are talking about a trend where 12 in the last 15 years corn traded higher in the second and third weeks of October. But in three of the up years those rallies were for only a couple of cents. There were seven years where the corn board still drifted lower into the end of November. Except for 2011 and 2010 none of the other rallies saw gains of more than 25 cents over the two-week period. The average gain from that seasonal trade has been only about 13 cents.

Fundamentally the corn market could struggle trading higher moving forward. The main reason is the stocks to use ratio as seen in this chart:

Over the last 30 years, the stocks to use ratio has gone from tight (below the red line) to abundant (above the green line) four times. 

Every time the stocks to use ratio increased from tight to abundant (the orange lines) throughout the year, like 2023, corn prices dropped at least 30% and up to 42% from the year’s high to the fall low. The only exception was 1997, when it only dropped 15%. However, 1997 might not be a good comparison year because:

  • Prices in 1997 never rebounded to price levels seen in 1996.
  • It was right after the 1996 HTA debacle.
  • It was well before the ethanol mandate.
  • South America had not yet become the global export powerhouse that they are today.

2022 was also an unusual year because the stocks to use ratio was expected to be tighter than where it finished because the U.S. export pace never hit early estimates due to the large Brazilian crop that was harvested in May.

So far this year, corn has only dropped 25% from this year’s high. And a decrease in total export demand is not helping, despite Mexico’s buying running 25% ahead of normal for this time of year.

That increased pace may just be grain buyers in Mexico trying to source grain before the GMO vs non-GMO trade issue that will come into play in early 2024. Regardless of the outcome of that trade dispute, it seems likely that Mexico’s corn demand could decrease after the new year. This could lead to corn values testing the bottom side of the market again.

Are yields improving?

More farmers across the U.S. are telling me that yields are better than they expected. Plus, computer models are still indicating the national corn yield will be better than current USDA estimates.

Now that the government will stay open another month, the Oct. 12 USDA WASDE report will be released. If yields are raised in that report, the market’s price direction will probably change very quickly.

Please email 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.

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