Corn had been trading sideways between $4.77 and $4.89 since Aug. 11 until Friday when it never dropped below $4.92.
Technical traders have suggested the seasonal lows are already in for fall. They say Thursday’s breakout and corn struggling to trade below $4.75 are reasons why higher values should be coming soon.
Seasonal traders say corn traded higher in the second and third weeks of October in 12 of the last 15 years. However, three of those up years only rallied a few cents. There were seven years where corn drifted lower by the end of November. Except for 2011 and 2010, no other rally gained more than 25 cents over the two-week period, and the average gain from the seasonal trade was only about 13 cents.
Fundamentally, the corn market could struggle trading higher moving forward. The main reason is the stocks to use ratio as seen in the chart below:
Over the last 30 years, the stocks-to-use ratio has gone from tight (below the red line) to abundant (above the green line) 4 times.
Every time the stocks-to-use ratio increased from tight to abundant (the orange lines) throughout the year, such as 2023, corn prices dropped at least 30% and up to 42% from the year’s high to the fall low. The only exception was 1997, when it only dropped 15%. However, 1997 might not be a good comparison year because:
- Prices in 1997 never rebounded to price levels seen in 1996.
- It was right after the 1996 HTA debacle.
- It was well before the ethanol mandate.
- South America had not yet become the global export powerhouse they are today.
2022 was also an unusual year because the stocks-to-use ratio was expected to be tighter than where it finished because the U.S. export pace never hit early estimates due to the large Brazilian crop that was harvested in May.
So far this year, corn has only dropped 25% from this year’s high. And a decrease in total export demand is not helping, despite Mexico’s buying running 25% ahead of normal for this time of year.
Source: USDA/FAS/Export Sales Reporting
That increased pace might just be grain buyers in Mexico trying to source grain before the GMO versus non-GMO trade issue that will come into play in early 2024. Regardless of the outcome of that trade dispute, it seems likely Mexico’s corn demand could decrease after the new year. This could lead to corn values testing the bottom side of the market again.
Are Yields Improving?
More and more farmers across the U.S. are telling me yields are better than they expected one to two months ago. Plus, computer models are still indicating the national corn yield will be better than current USDA estimates.
Now that the government will stay open another month, the Oct. 12 USDA WASDE report will be released. If yields are raised in that report, the market’s price direction will probably change very quickly.
Want to read more by Jon Scheve? Check out recent articles:
Which Crop Should You Store If You Don’t Have Enough Storage?
Why You Should Never Sell Cash Corn
Do the “Quick Ship” High Basis Values Indicate the US Is Out of Corn?
Why You Should Never Sell Cash Corn
Yield Uncertainly Continues For Corn And Beans
Even A Decrease In Corn Yield Does Not Mean Prices Will Rally
Jon Scheve / Superior Feed Ingredients, LLC / jon@superiorfeed.com
