Seven stages of a corn market
Unless there is a surprising weather scare problem between now and harvest, once the market finally finds a bottom, and it will, expect the winter doldrums to begin
By Richard Brock, Brock Associates
During life, we all go through several stages. Some are more fun than others. The grain markets is not all that different. It goes through several stages in its price cycles, and emotionally, we just have to adjust to the changes.
After the long base-building phase from 2015-2019, prices finally broke out on high side in late 2020, eventually peaking in 2022. We are now on the backside of that price cycle. Many have adjusted to the recent price changes quickly. But some are still having trouble adjusting.
The August Supply and Demand (WASDE) report that was released on August 11th is helping to accelerate the cycle. The initial interpretation of the report was bullish since USDA reduced projected 2023/24 ending stocks. But by the end of the day on that Friday, corn futures had finished with an outside-day-down, which was a strong indication that the downtrend that was already well established was going to accelerate. Since then, December corn futures did go on to make new lows the following week. As of this writing (on August 18), December corn futures have rallied back, but are still trading a few cents below where the market was trading when the supply/demand report was released.
Inverted to Carrying Charge
For the past year or two, the front two months of the corn market were trading inverted, indicating that buyers wanted the corn “now”. The July/Sep spread went off the board at a steep inverse, but in mid-May, the Sep/Dec spread flipped from an inverse to a “normal” or carry market beginning as nearby futures has dropped faster than the deferreds. We
mention this to point out the strategies that may have worked for buying and selling corn over the last two years will not work over the next two years.
Corn is now at the stage where it needs to find a bottom. My guess is that the low in the futures market could be in the $4.00 area, and possibly as low as $3.50. Farmers are not going to be happy. But they shouldn’t complain. Opportunities have been numerous.
But as with all market bottoms, it is now time to start building demand back. High prices are very destructive to demand. High prices encourage sharp increases in production (Brazil) and hurt demand. That demand only comes back with lower prices. Market bottoms in corn are long and flat for a reason.
It’s painful to anticipate the corn market going quiet once harvest is done and the erratic price moves of the past two years will go by the wayside. Actually, many of us will be happy to see that transition take place. Unless there is a surprising weather scare problem between now and harvest, once the market finally finds a bottom, and it will, expect the winter doldrums to begin.
