It is hard to believe that corn prices have been in a steady downtrend for a year.
Prices blew up last winter after Russia invaded Ukraine. This came on the heels of drought conditions in Brazil and less-than-ideal crops in the U.S. Surging energy prices and significant money flow into commodities were also elements helping to push corn prices over $8, something that had not occurred since 2012. Prices peaked in May 2022 and have been in a downtrend since. A sharp sell-off last June was followed by a recovery, though not to new contract highs. Peaking in October, prices then began sliding with only very shallow rallies along the way and continuous new low prices established. Are corn prices now becoming oversold?
Expectations for large crops in both the U.S. and Brazil have left end users somewhat complacent in their buying. Brazil’s total corn crop should be a record and U.S. corn acreage is expected to increase to 92 million from 88.6 million a year ago.
Supplies from 2022 are still snug. Poor export sales and a slightly slower-than-expected pace of corn used in ethanol production suggests that U.S. and global supplies will be on the rise. Managed money has moved from strongly net long to net short.
However, one variable (more than any other that impacts production) is weather. Those who purchase corn recognize that impactful weather for the Northern Hemisphere begins more toward mid-June, not spring. Yes, poor spring weather (2019) can occur to delay planting and early growth, however, this is usually overstated. Once mid-June rolls around, all bets are off. The assumption that a good spring implies a big crop may be bold and assumptive with low prices during the planting season.
For those who purchase corn, now is the time to sharpen your pencil and keep it handy. While doing nothing has paid dividends, at some point that could backfire.
USDA forecasts the average farm price will be $5.60 a bushel. Currently, December corn futures are trading near $5.15. Considering cash prices are usually below futures, it is conceivable that new crop corn prices for many are currently trading anywhere from 45¢ to 80¢ below what the average price for the year is expected to be. For most corn producers, this is below the cost of production. While it is true the market doesn’t owe farmers a profit, at some point, the industry either will provide profits or at least the perception of profits to maintain strong production.
Buyers should not rest easy when prices are low. Execute strategy now.
Consider locking in feed prices soon. If you’re concerned you might still be buying at too high of price, consider purchasing a put against bought bushels. If you don’t want to lock a price or you can’t find someone who will sell to you, consider buying call options as safety valves against a price turnaround. By about a 10 to one measure, weather is more important than any other variable for production. In mid-May, it is naive to believe you can guess the weather impact 60 to 90 days from now.
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
