Corn finished last week down 15 cents and was nearly 30 cents off the highs from the previous week. Harvest pressure might finally be hitting the corn market. The commercial short positions in the market, which the trade usually views as farmer sales, are at the lower end of the range of the past 10 years. This should be concerning to unsold producers because it means farmers are way behind on sales and any futures rally might be met with increased sales pressure. It could also mean the low for the marketing year is not in yet.
A Historical Look at December Corn Lows
In eight out of the past 16 years, December corn has hit a low for the calendar year after Sept. 1. Half of those lows occurred in September and the other half came in November as seen in this chart:
So far, the low for the year was on Sept. 19 at nearly $4.68. The concern moving forward is that December corn could still find the low for the year in the month of November. Even if it does not find a low in November, history shows in two of the years when the September low held for the year, corn’s value by late November was within 20 cents of that low. The other two years had good rallies, but the lows in those years were in the lower $3 range before the rallies began.
In the past 33 years, corn’s low for the year happened the most in November at 33% of the time.
Soybean Price Potential
Soybeans remained range-bound this week, closing only 5 cents lower than the previous week but up 10 cents from two weeks ago. With harvest nearly complete and soybeans stored away, it could be a while until farmers are willing to sell.
Reasons to be bullish beans:
- U.S. export estimates are forecasted to be near trade war levels.
- Current carryout projections are the tightest in seven years.
- Soybean meal rallied almost 20% in the past month because Argentina is expected to have low supply until March.
- U.S. processors will likely be running at full capacity and need a lot of soybeans to make up for Argentina’s short falls.
- China might also need to buy additional beans to crush to make up for Argentina’s lack of meal production as well.
- Recent rains have caused the Mississippi river to rise slightly, which should help lower freight costs and make the U.S. more competitive globally.
The main reason to be bearish soybeans, is that world stocks are ample. Brazil had a monster-sized crop, and this might lead to less of a need for U.S. exports longer term.
Analyzing the Soybean-Corn Ratio
The corn and soybean markets might take different paths after harvest. Corn’s carryout looks burdensome, and farmers are extremely under-sold compared with other marketing years. It seems farmers have sold nearly an average amount of soybeans for this time of year, despite their carryout being much tighter. This could cause the soybean-to-corn price ratio to trade at unusual levels.
The soybean-to-corn price ratio is factored by dividing soybean’s futures value by corn’s futures value. In the last 20 years, there were only four marketing years when the price of beans was 3.2 times the value of corn or more. See the chart below:
The years that saw a ratio above 3.2 were years that had tight soybean supply or extremely burdensome corn reserves. The current carryout estimates point to the possibility of both burdensome corn stocks and potentially tight bean carryout in the U.S.
If the 3.2 ratio happens again, corn could stay at $4.80 while soybeans trade above $15. Even if corn fell to $4.40 next month, at a 3.2 ratio $14 soybeans is still possible. If the ratio expanded to 3.4, as has happened in other years, $15 is still theoretically possible if corn would continue to trade lower.
If you would like to know more about this type of information or your local markets for corn and soybeans, reach out to me at jon@superiorfeed.com.
Want to read more by Jon Scheve? Check out recent articles:
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Corn May Be Stuck Trading Sideways, But Beans Could Have Some Upside Potential
Are The Lows In For Corn? Maybe Not Yet
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