Special Market Update
Grain Market Commentary
Monday, April 17, 2017
By Greg Johnson, Executive Account Representative, The Andersons
Spring Is Here. Are Summer Rallies Just Around The Corner?
Spring arrived almost a month ago, and with the advent of spring, the markets have focused their attention on the planting progress of corn and soybeans. Corn acres are expected to be down 4 million acres from a year ago, while soybean acres are expected to increase 6 million acres from 2016. Since these numbers were released on March 31st, corn prices have rallied 13 cents (up 3.4%), wheat prices have rallied 9 cents (up 2.0%), while bean prices are unchanged from 3 weeks ago.
Some people are thinking (hoping) that a wet forecast may allow corn prices (and to a lesser extent, bean prices) to rally. While we may get a small bounce on wet weather and planting delays, historically the big rallies come because of dry weather in the summer, not wet weather in the spring. Remember, also, that U.S. ending stocks are at record levels, and South American double-crop corn acres are huge.
Summer Corn Rallies
Below is a chart showing how much December corn futures have rallied in each of the past 32 years. While corn prices rallied an average of $2 in the summers of 2010, 2011, and 2012, a more appropriate range to look at might be the last 4 years, when ending corn stocks were closer to where we are today. In those 4 years, the average summer rally was 55 cents.
December 2017 corn futures traded as low as $3.80 on March 27, 2017 (just before the USDA planting intentions report was released. If we see a similar 55 cents rally this year, we might expect December corn futures to trade around $4.35 sometime this summer.
Good risk management would suggest not waiting for this price level before starting to price your new crop corn. Know your cost of production, have offers in on a scale-up basis to lock in profits, and do not let the emotion associated with a summer rally prevent you from selling corn at profitable levels.
Summer Soybean Rallies
Looking at the soybean chart below, it shows that beans have rallied an average of 90 cents off of their summer lows over the past 3 years. While the low of November 2017 soybean futures has been $9.40 this year, we may go lower than that before the summer rally kicks in. If November beans trade down to $9 in June, the average 90 cent rally would still not get the price back to $10. Also, with a record South American soybean crop and a record amount of U.S. acres planted to soybeans, this year’s summer rally may not be as much as what it has been in previous years. Keep this in mind when determining where to place your open offers.
Summer Music Trivia
While waiting for the summer rally, can you think of the “summer” songs that the following artists recorded? All titles have the word “summer” in their name.
- Bryan Adams
- Don Henley
- Alan Jackson
- Kid Rock
- Lovin’ Spoonful
- Mungo Jerry
- Nat King Cole
- Seals & Crofts
- John Travolta/Olivia Newton-John