Corn Super Bulls

What’s Happened…

Corn futures, for the most part, have trended in a sideways price pattern for multiple years between $4 and $5. There have been a few instances where deferred months may trade above $5 or nearby contracts below $4.00. As this pattern has developed, a broader view of the consequences of low prices is developing. A basic economic assumption that low prices eventually cure low prices is in the making. This is based on the concept that production costs and revenue received by farmers are very close for producers (if not negative). This implies corn is considered a value to end users. Value here is defined as the ability to buy a commodity at or below the cost of production. The 2025/2026 projected demand at 16.470 billion bushels is an all-time high. Total U.S. supply, thanks to record yield and production in each of the last three seasons, is 18.597 billion bushels. Brazil (a major supplier of corn to the world) has also experienced record crops.

Are continuous record crop sizes the new norm, or is it just a matter of time before prices rise due to future production disruptions? History would agree with the super bulls, those who believe current prices are undervalued and a price rally is in the makings. Inflation, coupled with fertilizer availability concerns, could be catalysts to a rally if less-than-ideal weather occurs. Crop production is not guaranteed.

Why this is Important…

For purposes of simplicity, we’ll use round numbers. In 2008, prices exceeded the all-time high of just over $5 to over $8. This 60% increase in value was unprecedent and shocked the world. In 2012, drought conditions saw December corn futures rallying over $3 in less than 60 days from June to August, again another 60%. In 2022, futures again exceeded $8.00 after trading under $4 just two years prior.  At some point, either actual or perceived supply shortages will occur. History is relevant for this statement.

If comparing the price of corn (say, an average price of $4.50 in the last 3 seasons) to other markets and their percentage changes, a more vivid picture may emerge for an upside target. History suggests $8 is achievable. Gold futures increased from under $1,700 per once to over $5,000, a change of 194% in 3 years. The Dow Jones stock index, trading under 32,000 in 2023, recently peaked at over 50,000, an increase of over 56%. In early 2023, live cattle futures were trading just below $160 per hundredweight and recently peaked over $250, an increase of over 55%. If corn gained 55% from $4.50, this is $6.97. If corn gained 100%, this is $9.

What can you do about it?

Prepare for big price swings. As world demand increases, supply must keep up. Record crops in recent years have done this. What if they don’t? Smart marketing is critical. This means staying nimble, yet aggressive. You likely can’t afford to not make sales with futures near $4.85. On the other hand, a start to a commodity price boom may be underway. A test of $7, $8, or $9 is real, as any news can move the market and the outlook. Learn and know how to use ownership and price flooring paper strategies. It might be a year where buying puts is preferred verses aggressive forward selling. The key is balance and preparation. At some point, the super bull argument could be a reality.

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 and less-emotionally charged responses to market moves, which are always dynamic.

About the Author:

With the wisdom of over 36 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