TFM Perspective 06-02-2023

Corn Futures 2023 Versus 2013

Skyrocketing corn prices on the heels of a drought in 2012 had prices peaking and then trending downward from the fall of 2012 through the harvest of 2013. Fast forward a decade to 2022 and, again, prices traded up to $8 and have since been on a slippery slope, with December 2023 futures peaking at $6.37 in October of 2022. The parallels of the two years are similar enough to explore and ask what the low price might look like for December 2023 futures if the pattern continued.

In the fall of 2012, December 2013 futures peaked at $6.65. Prices then proceeded to slide until finding a low on May 21, 2013, at $5.12. That’s a drop of $1.53 or 23%. In the 2023 December corn futures, prices peaked at $6.37-1/4 in October of 2022 and reached a recent low of $4.90-3/4, a drop of $1.465 or 23%. In May of 2013, December futures recovered 61.5 cents before resuming the downtrend, eventually finding a low at $4.10, a drop of $2.55 or 38.3%. So far this May, December 2023 futures have gained 46 cents. If December 2023 resumes its downtrend to 38.3% for the year, this would equate to a low of $3.935.

It is too early to draw a conclusion that 2023 corn futures will parallel 2013 for the rest of the season.  While the two are similar in price patterns so far, to conclude that this will continue is premature. There is an entire growing season ahead of the 2023 crop. The cost structure for producing corn is much different this year than it was in 2013. The old saying is that nobody cares about your cost of production. That has some ring of truth.  However, the corn industry cares very much about whether producers can finance and grow good crops. It is more expensive to grow a corn crop in 2023 than it was 10 years ago. Additionally, with the advent of additional marketing tools, including the ability to buy stronger insurance floors, the likelihood that farmers will be selling corn much below $5.00 (let alone below $4.00) is low. Increased storage capacity is a factor.

Nonetheless, the most pronounced parallel is that high prices do change the long-term demand structure. Buyers in uptrending price years tend to buy ahead more aggressively to secure inventory. Usually there is a supply scare as the backdrop to this buying practice. Once the scare (usually weather related) has passed, end users tend to buy only as needed. The rationale here is that when prices are high and future supplies are perceived as more plentiful, there is little reason to spend lots of dollars to book ahead. In fact, high prices usually create an incentive for production increases. In both 2013 and now in 2023, the export market has experienced a pronounced slowdown. Domestic buyers are only purchasing what they need on a near-term basis.  Acreage for both 2013 and 2023 exceeded the previous years, signaling that if normal production occurs, supply will increase.

From a marketing perspective, corn producers should recognize that, despite a smaller inventory on hand during years following lower production, the tendency for more production and less demand is real during the next year. Therefore, selling ahead on portions of the crop, perhaps more aggressive than you typically might, makes sense. For now, however, 2023 producers are stuck with a dilemma: should they sell into the most recent rally or wait to see if weather has more impact on expected production? A balanced approach may be most appropriate, which might include strategies such as forward contracting and purchasing call options. Or, purchasing put options to establish a price floor and leaving your corn unpriced.

Whatever your approach, be sure to understand the risks and rewards before entering into any strategy or position. Talk to a professional to help you determine what strategy may work best for your operation and your goals.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

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.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.


Bryan Doherty

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