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Is the Low in for New-Crop Corn?
In 2012, drought conditions reduced production about 25% from early-season expectations. Since then, however, corn prices have been trending in a more seasonal pattern due to big corn crops in each of the last four years.
Harvest lows are likely to be established at peak supply (late summer or fall). In this Perspective, we’ll take a look at December corn futures; when they bottomed and at what price.
Since 2013, a common trend is for prices to move lower into the fall, and then recover by the time December futures stops trading. A general takeaway from this view is that you probably don’t want to sell your crop in the fall months. If you are a buyer, you will probably want to take action.
Let’s start with 2013, the first year removed from the drought-shortened crop of 2012. Prices ran into resistance just above $5.50 in midsummer and began a long and steady downtrend before finding a low on December 2 at $4.10. Prices recovered to $4.30 before finishing the contract at $4.20½.
However, from a date more relevant to this time of year (the third week of September), futures were trading at $4.40. As you can see, even though prices moved about 20¢ lower, they didn’t move substantially lower relative to the overall trend. Bottom line, the market was searching for a low, and found this by early December.
In 2014, prices began their downtrend in early May from over $5.00 a bushel. Prices sustained a steady downtrend without even a correction of more than 10¢, all the way to the end of September. Prices bottomed on October 1 at $3.18¼, and then rallied in a steady uptrend until mid-November, trading over $3.80.
By the end of the contract, futures finished at $3.96, a substantial gain off the low. That was a year of record production, yet prices did seek a low in the fall (as one might expect in a big supply year), and they did recover. If the market suspects a big crop, a low price is often established before or into the early stages of harvest.
In 2015, prices rallied sharply from mid-June to early July, peaking at just under $4.50, only to quickly slice lower. They found a bottom in early August at under $3.60 before rallying back through mid-October to $4.00. A decline to $3.56 on November 10 occurred, followed by a rally to just under $3.81 when December futures stopped trading.
In 2016, prices peaked in mid-June, followed by a steep decline until August 31, when December futures bottomed at $3.14¾. Prices gradually recovered and ended the contract at $3.51¾. This was, again, a year in which prices found a low and then managed to gravitate higher by the time December futures stopped trading.
In each of these four years, December futures experienced a price recovery into December. This may be something to think about this year, with prices currently trading in a consolidation pattern since posting a very prominent bullish key reversal on August 31.
While no two years are exactly alike, 2017 December corn futures seem to be mirroring 2016. If a low is not in, we think it’s very close. We’re not convinced that this year’s crop has a lot of room to grow in size. Expectations for record world demand and slow farmer selling at current prices suggests the market is seeking its low (if it is not already in place).
Be patient sellers, and don’t get too enamored with the idea that prices have to recover significantly. Large carry-out will continue to act as a resistance factor. History suggests that a 10% increase in value by the end of the year is possible. Buyers of corn, on the other hand, could begin buying long-term needs now.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, ext. 129.
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