Always store a record cropAlways store a record crop
September 1, 2016
*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].
ALMOST everyone in the business has heard two reliable rules of thumb over the years: (1) never store a short crop and (2) always store a record crop. This year will likely see a record corn crop.
It is also likely that the corn market will hit its annual lows sometime between the time you read this and Oct. 15. All of the news is bearish, and unless someone has been on vacation for the last year, everyone knows it. That is why the market prices are as low as they are.
Also consider that the heavy movement of cash corn likely occurred pre-harvest as producers dumped out old-crop corn from their bins. A considerable amount of new-crop storage has been built, and temporary storage has been a hot item.
The 2015-16 crop made its annual lows during the month of August. That has occurred 26% of the time since 1970. Combined with the old rules of thumb mentioned, just look back in history to see what has happened in previous years when central Illinois cash corn prices made their low for the marketing year during August. The results are interesting.
Since the mid-1980s, the low has occurred in August six times. On average, July futures prices increased by 11 cents/bu. from Aug. 31 to May 1. The largest decline in July futures from the end of August was 30 cents, and that occurred in 2013-14. The largest increase was when the market rallied 74 cents in 2002-03.
The Figure shows what it looks like when combining those years into a seasonal pattern. There is a strong, seasonal tendency for the markets to make their lows early, prior to mid-October, and then rally into springtime.
While I am not implying that storing corn on a speculative basis is a good idea, it does verify that storage should pay big dividends this year as basis gains are nearly guaranteed. Futures prices will likely come down to meet the cash price, and with July corn trading at approximately $3.60/bu. and central Illinois cash corn prices at $3.14/bu. when I wrote this column, a narrowing of the spread is inevitable.
Storing corn will pay big dividends this year.
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