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Have grain prices hit bottom? Many say yes.

Al Kluis 02/03/2014 @ 1:17pm

When the corn market dropped under $4.20, the phone rang at least twice per week -- sometimes daily -- with a farmer who said, “I read on the Internet that corn futures would drop below $3.00 per bushel by the fall of 2014.” The professionals seemed to agree; a lot of the conventional supply/demand economists are getting really bearish. It's almost been like a contest to see who can project the lowest price.

I don't agree.

As of this coming June, I will have traded commodities for 40 years. My instinct (which is basically 40 years of complex data analysis) tells me we are getting close to a low. Whenever everyone gets bearish at this time of year, it usually is a big mistake to go along with the crowd. Late February to early March is usually one of the best times of the year for livestock feeders to buy corn; it has usually been one of the worst times of the year to sell corn or put on new crop hedges.

When I talk with farmers who are in a panic about prices, I always say that the forecast of corn futures going below $3.00 was not impossible, but it is highly unlikely. (I give it less than one chance in 10.) On the flip side, I also think the chance of nearby corn futures going back up to over $7.00 this year is less than one in 10.

Farmers who want to do a good job of marketing should focus on a long-term view of the market. You should take the steps to make the best decisions for your farm and put together a successful marketing plan. This will help you a lot more than worrying about someone who writes price forecasts on the Internet.

Here are the three steps I take when I am making long-term price forecasts for corn and soybeans:

  1. I look at where prices are compared with six months ago, and compared with one year ago. For example, corn: Prices are down about 26% from six months ago, and down about 38% from one year ago. Soybeans have not had as drastic of changes: Prices are down 10% from six months ago and down about 15% from one year ago. These numbers tell me the trend is pointing down.

  2. I review my long-term grain price cycles. The corn market has put in a major low about every five to seven years. The cycle averages 68 months low-to-low, and has worked reliably since the 1970s. Based on this cycle, the next major low in corn is due by the first quarter of 2014.  For soybeans, the pattern has been for lows every 28 to 48 months. The cycle averages about 39 months low-to-low, with the next major low due by March of 2014.

  3. I review my long-term monthly and weekly charts. The corn market plunged between July and November of 2013. In the three months after that, prices "chopped sideways," meaning they still moved up and down but in a fairly small and well-defined range. When will this be over? It will be the first month that corn closes above the two previous months' high; that will confirm an important low. Meanwhile, soybean prices fell sharply from the high in July 2013 to the low in November 2013. The long-term soybean chart shows major support at $11.00.

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