There are two old rules of thumb in grain marketing that are important to keep in mind right now. They are:
1) Markets peak on bullish news and bottom on bearish news. The news was as bearish as it could get two weeks ago when corn and soybean prices both made exhaustion bottoms.
2) Never store a short crop. Always store a large crop. This is a large crop, and large crops typically keep getting bigger until harvest is complete.
Many farmers who missed last year’s move and have storage available are storing old-crop corn as well as making room for new-crop. The cash position of most producers is still relatively strong. They can afford to wait this out. Thus, not as much corn is going to move to market during the glut of harvest as is typical.
Seasonal Odds
Below is an update on seasonal trends for corn and soybeans, and the percentage of time they make their lows for the marketing year in each particular month. For the marketing year that just ended on August 30, the lows in the cash market occurred in both corn and soybeans during August. Those were the lowest cash prices traded during the entire marketing year.
Throughout history if corn and soybeans markets bottom during August it is fairly common that the lows for the next year are made either in September or October. Since the year 2000, when corn prices have bottomed in August, 70% of the lows the following year were made either in September or October. It doesn’t always work, but 67% is pretty good odds. That dynamic is simple to understand: if near the end of a marketing year prices are at their lows and market sentiment is very bearish, that is not going to change overnight just because a new marketing year has started.
In the case of soybeans, following an August bottom cash prices have made their low for the following marketing year in September or October 65% of the time. Again, it doesn’t work every time, but the odds are good.
This does not necessarily mean that corn and soybean prices, along with wheat prices, are going to shoot sharply higher. It only means that prices are likely done going down. This has been a good buying opportunity for buyers of corn and buyers of soybean meal as well as wheat and wheat flour. The odds of buying any of these products cheaper are very small. Once the bearish news is all known, it gets built into the market price.
What Could Possibly Be The Upside Objectives?
First to page 6 and look at the December corn chart. The high established on May 28 is $4.93. The low established on August 27 was $3.85. A fifty-percent retracement of that spread would rally December futures to $4.39. A thirty-percent retracement would rally December corn back to $4.21.
Nothing is given, but we would give reasonable odds that December corn will rally into the price range between $4.21 and $4.39. That would be a good target zone for making cash sales if one needs to make them before the year end.
In the case of soybeans, a fifty percent retracement would take November soybeans to $10.91 (see page 8) and a thirty percent retracement would rally the market to $10.46. In that price range, we would favor starting to make some sales if one has not made many as of now. At least getting caught up to the thirty percent sold level in both corn and soybeans on those targets would be a logical place to start.
Spreads Are Favorable
Next, look at the December 2024 corn/July 2025 corn spread, and the November 24/July 25 soybean spread.
In the case of corn, as of midweek this week, July 2025 corn is trading at a 34-cent premium to the Dec. That is a reasonably good return to storage if one just wants to sell the July corn futures and wait for the spread to come together between cash and futures.
In the case of soybeans, July beans are trading at a 53-cent premium to the November 2024 contract. Once again, that is a favorable spread for anyone who wants to lock in a return to storage.
Fundamentals
The spreads are favorable for storing corn but aren’t a bullish sign for the market overall. And as noted near the top, big crops tend to get bigger. That may not happen this year, but at the same time, there’s little reason at this stage to expect a significant downward revision to current crop expectations. So, corn and soybean bulls are hoping for some crop problems in South America, which wouldn’t make themselves apparent for at least the next several weeks, or a new bullish demand story.
The Bottom Line
No one knows what could possibly make these markets move higher. The amount of corn supplies and soybean supplies once harvest is completed is going to be a mountain in both cases. Odds favor that prices could just go flat at these price levels, all of which are below the expected season average price at the farm. Buyers, both domestic and foreign, could step up to the plate once they recognize the bottom is in. Even foreign governments don’t buy if they think the market can get cheaper. Once a price bottom is confirmed, which we think has already happened, at some point buyers will start to get nervous and step up the purchase of cheap corn, soybean and related products.
The strategy of being an aggressive seller has worked over the last two years is not one to be using over the next 12 months. Time to adjust your thinking cap. The bad news is known and built into current price levels.
