Does it Pay to Wait Selling Corn in an Inverted Market?

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Most growers are probably reluctant sellers of new-crop corn in the current market for a variety of reasons.  First, with old-crop corn trading at life-of-contract highs, whatever previous sales they had on bushels already relinquished were done at worse prices than now exist in the open market.  Second, current spot prices are also at a significant premium to new-crop values, with an approximate 75-cent inverse between May and December futures.  Many may feel that new-crop corn is therefore “undervalued” and does not adequately reflect what corn should be worth come harvest.  Moreover, the inverse should close at some point with new-crop prices rising to meet old-crop price levels.

Over the previous 25 years, there have only been 5 others besides 2021 when this type of inverse has existed as of early April:  2013, 2012, 2011, 1997, and 1996.  It is instructive to compare these “analog” years historically to determine whether selling December corn futures into a seasonal spring/summer rally has been beneficial to the grower versus staying open to the market into the harvest period.

Looking over this history that extends back to 1996, we can examine the seasonal tendency of December corn futures; or rather, at what time(s) of year generally does the contract tend to record its highest price?  This history reveals that December corn futures generally peak by now, or by sometime in mid-June (Figure 1).

This suggests that savvy marketers should probably be prepared with some type of plan to scale into sales over the next several weeks.  Obviously, there are risks that prices this year may behave counter-seasonally and possibly peak later in the summer or potentially not until the harvest period.  There is one example in this history of analog years that is interesting where such a risk may play out in the current year.

Figure 1.  December Corn Futures Seasonal Chart (1985-2020):

The analog years span a wide history, with three recent examples and two during the pre-ethanol era when corn prices were trading at much lower levels than what is the case now.  Price peaks for December corn futures came as early as March 27 during 1997 (the 1996-97 crop marketing year), and as late as August 30 in 2011.

In one year, the low for December corn futures on June 15th preceded the high for the contract that year on August 21st.  This was the infamous drought year of 2012 when a 60-year event across the Corn Belt shrank national corn yields to 123 bushels/acre and sent the domestic stocks/use ratio down to 7.4% vs. the 10.2% projected this year.  Not only did the high come later that particular year, but harvest prices were over $7.00/bushel and considerably higher than where spring prices that year were trading in the low to mid-$5.00 range.

Figure 2 shows a table of these 5 analog years, with the inverse between May and December corn futures as of the beginning of April noted along with highs, lows, and dates of the December corn futures contract for comparison.  The 2012 year is indicated with an asterisk to reflect the one year where a marketing strategy based on a seasonally scaled-in selling approach was disadvantageous to the grower by harvest time and expiration of the contract.

Figure 2.  Comparison of Analog Years for the December Corn Futures Contract:

Inverted Corn Markets are Not Predictive

While most growers will naturally be reluctant to sell forward new-crop bushels this season, there are compelling reasons to consider doing so.  While prospective acreage based on the USDA’s preliminary report is below market expectations and only marginally above last year, that may yet change by the final figure in late June.  Moreover, a fast start to planting this season may also encourage additional corn acreage that may not have been intended.

In addition, much of the bullish fundamental outlook is predicated on the continuation of strong demand, particularly from China.  Given recent news of new ASF variants taking out around 9 million sows, forward demand is questionable despite clear intentions and incentives to rebuild the herd there.  Also, high prices are likely to encourage additional corn acreage outside of the U.S., and the world supply/demand balance is not as historically tight relative to the U.S.

In conclusion, there is strong historical evidence that selling into this type of market structure has been beneficial based on past analog years.  Moreover, inverted markets are not predictive of future price direction.  It is not true that forward prices will always rise to meet spot values.  Unless there is a widespread drought this summer, it may be difficult for corn futures to push significantly higher from current levels, particularly given the degree of fund length already in the current market.

As a result, it may be the case this year that adhering to a disciplined, normal schedule of progressively scaling into new-crop corn sales over the spring and summer will prove beneficial by harvest this fall.  While most growers will likely be bullish, new-crop marketing plans might be a timely thing to prepare as we move further into the spring.

For more help on initiating marketing strategies or to review your own strategies, please feel free to contact us.

There is a risk of loss in futures trading. Past performance is not indicative of future results.