IS it time to start buying corn? Probably not. If your goal is to buy in the bottom one-third of the annual price range, the corn seasonality chart (Figure 1) gives a historical perspective of why you are probably better off waiting.
Since 1970, the majority of lows in the corn market have come very early in the marketing season or very late in the season. In fact, 44% of the lows have occurred in the September/October time frame, and 37% of the lows were in July/August.
So far this year, cash corn in central Illinois reached its lowest price the day before the release of the U.S. Department of Agriculture's January crop report.
For one moment in time, corn prices were under $4/bu.
I'm not saying that can't be the bottom, but history reveals that it has happened only one time since 1970, and that was in the 1979-80 marketing year. What's interesting is that the lows in the cash market have never occurred in March, April, May or June.
How it could happen
What type of scenario is necessary for lows to happen this July and August?
To begin with, in the April crop report, USDA lowered the expected carryover in the new corn crop to 1.33 billion bu. This was lower than many in the trade expected, but let's keep it in perspective: That's a lot more than last year's carryover of 821 million bu. There is very little chance for a squeeze in old-crop corn prices at the end of the marketing season.
A further surprise to most of us was a planted corn acreage projection of 92 million acres. Since the survey was taken, prices have rallied considerably, and thus, if favorable weather occurs at planting time, the final planted number should be slightly above the 92 million-acre estimate. In any case, the final number should be within 1 million acres of 92 million.
National average corn prices, based on my firm's computer model, should be a big help in estimating prices throughout the growing season (Figure 2).
It is fairly simple to read. For example, if 92 million acres were planted and the national average yield was 164 bu. per acre, then the average price of cash corn in "central Illinois" would be $4.50/bu., give or take 20 cents. If 92 million acres were planted and the yield was 158 bu. per acre, the price would jump to $5.50/bu.
Now, let's assume that 94 million acres were planted and the yield was 164 bu. per acre. The average corn price would be $4.00/bu. By using this Figure, you can map out the expected average price as the growing season progresses based on acreage and estimated yield.
The scary part is that the range at this stage can be very wide. Still, if you assume normal yields and 92 million planted acres, December corn futures trading at or above $5 would be a very overpriced market.
So, unless severe weather conditions occur, the odds of this market establishing new lows in July or August is reasonably good.
Odds in your favor
The last USDA grain stocks report made it clear that midwestern farmers were aggressive sellers of soybeans this year but decided to store corn.
Particularly in the Upper Midwest, there will be a lot of corn that needs to move after the Fourth of July.
Making purchasing decisions requires three steps: (1) what to do, (2) how much to do and (3) how to do it. Steps 2 and 3 are more important than step 1.
For example, if you don't believe my scenario or are concerned about growing conditions this summer, buy 20% and hope that it was the wrong decision so you will pay less on the remaining 80%.
Being right or wrong is not as important as how much the buyer is right or wrong. Using futures and/or options also increases your flexibility.
Remember the old rule of thumb in grain trading: "The market gives you six minutes to sell the top and six months to buy the bottom." Be patient.
*Richard A. Brock, president of Brock Associates, has been publishing "The Brock Report" for more than 30 years. He leads the Brock Associates team and is responsible for the development of marketing strategies. Brock also serves as a commodity marketing adviser and price forecaster to many of the nation's largest agribusiness firms, food companies and financial institutions. He can be reached at [email protected]