Is the Bottom Near for Corn Prices

What’s Happened…

The recent drop of more than $1.00 in the corn market has been quick and furious. Downward speed experienced by prices often occurs when traders liquidate long positions in mass. The money managed position (as noted on the Weekly Commodity Futures Trading Commission report) held a record net long position in late summer. The backdrop to the liquidation has been two unexpectedly negative USDA reports. The first came in the Quarterly Stocks report on September 30 where stocks rose 170 million bushels above expectations. The second came from a reversal in a downward trending yield when the October 12 monthly WASDE report indicated an increase of 2.7 bushels an acre from the previous month.  

As prices drop, technical damage occurs on charts and sends a signal to those who are long (buyers) in market to exit. It may also send a signal for those who are looking to go short (sell) to enter on weakness, with the expectation the trend is turning weaker. A rising dollar, harvest pressure, and weakness in soybean and wheat prices also weighed on corn futures. The question now is: Have prices exhausted themselves enough to the downside, or is there more to come?

Why this is Important…

It is likely that corn prices are now searching for a bottom. Harvest will be winding down in a matter of weeks. It is also likely end users will be more aggressive buyers. A drop of just under 20% in the futures price has provided unexpected benefit from just several weeks ago when it looked as though corn supplies would be much tighter in the winter months. The proposition that corn is priced at or below the cost of production to the producer implies corn is priced at a bargain for users. In the more immediate near term, producers who have enough sold (and the summer price rally did provide for this opportunity) are likely to lock the storage doors and wait to sell. This can also help to form a bottom. 

The speculative interest will likely take its cue from upcoming USDA reports and price chart activity. Another negative surprise does not seem likely. As of this writing, technical chart conditions suggest futures are well into the oversold category. If wanting to initiate or add short positions, traders will likely ask themselves what they really expect to gain in a marketplace where farmers are likely to be non-sellers and end users aggressive buyers. Additionally, if a price recovery occurs, buy stops (orders placed to either exit short positions or go long) could trigger additional buying. 

What can you do about it?

For corn producers, the fundamental picture has changed. This suggests that rallies will likely be limited. Pricing opportunities in 2027 will loom larger as harvest wraps up. With carry factored into the price, upside potential may be limited. End users should consider buying more aggressively, as prices may be near a harvest low. A lot of farmer feedback suggests their yield numbers are not aligned with the most recent USDA forecast. Though unlikely, changes to upcoming USDA reports could affect prices. Marketing never takes a day off. Strive for a balance using the right tool for the right time.

Find out what works for you… 

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally-charged responses to market moves, which are always dynamic.

About the Author: With the wisdom of over 37 years at Total Farm Marketing and 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 markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their 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. 

Author

Bryan Doherty