Sunday Scaries: What I'm Watching This Week In The Grain Markets

Corn, soybeans and wheat have all had an incredibly rough go of it to start 2023, with December corn down nearly 80 cents, November beans $1.30 lower, and Chicago wheat down $1.50 since the start of January.

A move like this is not unprecedented over the last decade, in corn we saw a 73 cent sell off from January 1st to April 24th in 2013, a 55 cent drop from January 1st to the middle of June in 2015, with a nearly 40 cent drop seen from the start of the year to mid-May lows in 2019.

Soybeans have years with similar losses as well, with the November contract losing a dollar from January 1st to April 24th in 2013, losing a dollar again from January 1st to June 1st in 2015 and falling over 80 cents from the beginning of the year to the start of the summer in 2017 and 2019.

In Chicago wheat we saw losses of around $1.30 from January 1st to late spring in 2013 and 2015, with around a dollar lost from the start of the year to early April in 2019.

Of course, 2013 may ring a bell the best, as it is the most memorable with us starting from extremely lofty levels across the board in all three major commodities and marking what ended up being a monumental transition in price and market action. Looking at corn specifically, 2013 was the year we discovered how important adjusting pricing expectations to shifting fundamentals was going to be.

We had come off a multi-year stretch of commodities being a safe haven, having been in that role since late 2007. Markets had been elevated for several years, marked by incredible volatility and a changing market structure, topped by an historical drought in 2012. We came into the year with incredibly tight global supplies and no room for error but had also found that elevated prices and poor weather had shrunk the cattle herd, limited export demand and stunted any additional major growth in ethanol.

2013 was marked by a sharp drop to start the year, starting at $5.90 and falling to $5.17 by April 24th. There was a fun pop that spring, with a 53 cent rally staged from that April 24th low, sending futures to $5.70 on April 30th, before trading again to $5.20 by May 21st. We then violently traded from $5.20 to $5.70 until the first part of July, finding ourselves at $4.90 by July 8th. Though rallies were staged to $5.25 a couple more times late that summer, we went off the board around $4.25.

2015 was very different from 2013 with us starting the year at $4.15 and feeling comfortable when it came to overall fundamentals in the corn market as we had a projected new crop carryout of 1.75 billion bushels put out by the USDA in May of that year. Heavy rainfall and flooding across parts of Iowa, Illinois and Missouri with above normal precipitation forecast for much of June, triggered a 90 cent rally from $3.62 lows on June 15th to $4.54 on July 14th. The market then proceeded to lose it all by mid-August, going off the board around $3.60.

2019 started like 2015, with growing carryout expectations. We started 2019 trading around $4.00, staying in a $3.85 to $4.00 range for nearly 4 months before selling off hard on a good start to planting, falling to $3.63 on May 15th. Of course, 2019 was the year the Eastern Corn Belt found itself underwater with millions of acres feared lost, spurring a 90 cent rally off its low, taking us up to $4.54 on May 29th. A dry window in parts of the Corn Belt prompted a sell-off taking 30 cents off the market in less than a week before staging a 50 cent rally, only to do that a couple more times before major selling returned, with the board going off below $4.00.

Market moves like what was described above were seen those years in wheat and soybeans as well, with big sell offs to start the year still ending up providing selling opportunities at some point that summer.

I’m just as guilty as anyone when it comes to feeling overwhelmed with the current market structure. As I spoke about a couple weeks back, I am a worrier by nature, and when you’re tasked with helping farmers navigate these markets…well, let’s just say I spend an inordinate amount of time pondering the potential situations that may arise.

However, after having gone through the last 10 years’ worth of charts in corn, soybeans and wheat I would say I feel far more confident starting this week than I did going into last. The good news being that historically speaking the market gives us opportunities to gain back some of what was lost in a sell-off like we have seen.

2014 was the only year that didn’t provide a summertime pop in corn, starting the year at $4.50, rallying to $5.15 by April 9th, only to give two more chances to sell around $5.10 prior to Mother’s Day before selling off for the rest of the year, going off the board at $3.95. But even then, the opportunity was given to sell at what had been highs of the springtime range if expectations were managed.

I think it has been pretty obvious how I have been leaning when it comes to market direction the last several months, with my worries over price direction increasing substantially these last few weeks as I’ve watched developments in the global cash market. While I was bullish the first time we touched $6.00 futures on the July board, I was equally bearish when we managed to see the May board retrace 100% of its March losses—though I was not near bearish enough when the December board hit $5.70 at that same time, it appears.

The market has managed to erase a substantial amount of risk premium, and though I feel many may disagree as to how much additional cash it will take to have the ‘right’ amount of risk accounted for, with a potentially violent transition from La Nina to El Nino, an economic situation that is far from resolved, the risk of a potential escalation in Ukraine, speculators with limited length and the pure fact is it only the 1st of May, the chance is good we could see an incredibly swift increase in price.

I say this with a word of caution though, the rise that we do get will likely come quickly, also likely taking us by surprise. Speaking directly to farmers here, the rise in price is always paired with rising optimism and an increase in talking heads and other farmers discussing worst case scenarios, convincing themselves and everyone around them that prices need to continue higher.

I will never forget sitting in front of a room of Iowa farmers in July 2015 listening to the other participants of the marketing roundtable I was on speak of all the reasons the 90 cent rally we had seen was going to add another 50 cents. As it turns out, that market event took place near the top of the market, leaving many farmers with an incredible number of bushels unsold as they waited for more.

In the end, as it stands currently, we are well oversold for where we have been and are poised to see some type of recovery, the last 10 years worth of price action agrees—now it just becomes a matter of from where. 

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