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A February peak for corn price?

01/27/2012 @ 11:09am

My last class in statistics was in the summer of 1967. That was 44 years ago. Most of what I know and use is based on some very general principles I learned back then. For instance, I know that sample size is important. Therefore I do not trust any conclusions based on less than five years of price data. I am more comfortable if I have ten years of information.

Another thing I learned is that averages can be deceiving. The current state of the corn market illustrates this fact. A look at the 20-year average of December corn futures prices shows the market basically flat from around the first of August until December 1. However, in any given year there can be sharp up and down moves during that time period. That was certainly the case this year. The market took a nose dive as harvest was starting, but has been up and down three times since then.
 
A graph of the last five years shows a gradual trend higher from January 1 through the end of May. That is followed by a spike higher in June and equally rapid price drop when weather ceases to be a big factor. However, in any given year sharp up and down moves can take place during those first five months of the year. That is where we are in the marketing year right now.

While there is a good possibility of seeing the yearly high some time in April, May or June, the path the market takes getting to that high is unpredictable. If the weather in South America continues to be unfavorable and demand remains strong, prices could trend higher through spring. A more likely scenario is that at some point the weather problems with be bid into the price and the rally will end sooner than normal.

Both the long term 20-year charts and a chart of the most recent five years shows a peak in June followed by a sell-off in July and August. Then there is another rally in early September followed by a low at harvest. The tricky part of marketing is that sometimes these seasonal events come a little early and sometimes they come late.

Occasionally a seasonal pattern will change completely. The move in the soybean market that I called the “John Deere Low” has disappeared from the charts completely. In earlier years it was common to see soybean prices drop in February as farmers sold grain to generate cash flow to make payments and purchase inputs for the coming growing season. Updates of the charts through 2011 no longer show that event even though it does take place in some years. 

I wish I could predict with confidence that grain prices will continue to rally for several months. As I mentioned above that is probably not going to happen. While I never recommend making sales in February, if the price gets high enough to meet your cash flow requirements I would not discourage sales on rallies no matter what the calendar says. In 2011, for the first time in recent history, the yearly high in soybean prices was in February. Statistics say it shouldn’t happen, but it did!

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