The past six months in the grain markets prices have been extremely volatile. Most everyone’s anticipating that the next six months will be the same. But from the time my last article appeared in the third week of February to now the third week of March, July corn futures are unchanged, July 2022 corn futures are up four cents, July soybeans up 25 cents, November soybeans up two cents and July soybean meal down $13.00. While a lot volatility occurred between point A and point B, it would have been a good month to have just gone fishing.

Some would say that markets are irrational while others, myself included, believe that markets are rational for the most part; it’s people who aren’t rational. People are the ones who “vote” on market price moves. That’s why markets have so much volatility. The facts don’t change very often, but the way people interpret the facts changes constantly. Markets frequently anticipate news that never happens. There is no lack of speculation about anticipated news year and its impact on grain prices. For example, how big is the Brazilian crop… how many acres that will get planted this year to corn or soybeans this year, not only in the U.S. but around the world? What is the potential for a drought? The list is endless. It’s normal for everyone to be thinking of this way during March.

Are Corn Supplies Tight?

Depends on who you talk to. Our current estimated carryover for 2021 corn is 1.427 billion bushels versus the USDA’s 1.502. That equates to an ending stocks-to-usage ratio of 9.7%. If U.S. farmers plant 93 million acres this year and we have a yield of 177, we come up with a carryover of 1.7 billion bushels and an ending stocks-to-usage ratio of 11.8% for 21/22. A lot of people think both of these numbers are very tight because they’re comparing to the 2018/19 marketing year as well as the two previous years prior to that when carryover was north of 2.2 billion bushels.

Now roll back to March of 2013. 2013 was one of the biggest bear markets in history. December corn futures from January to December expiration declined nearly $2.00 per bushel. The ending stocks-to-usage ratio for 2012/13 was 7.4% and for 2013/14, it was 9.2%. Much tighter stocks to usage ratios than this year’s and yet we witnessed a $2 decline in corn prices.

This example merely points out that “known news” is not very useful. Just as the chart shows record corn shipments and total sales to China, it is news that everyone knows.

I am not inferring that this year’s grain market is going to act like 2013. Too early to tell. It is a reasonable observation, however, that if U.S. farmers plant 93 million acres of corn and 90 million acres of soybeans, both markets are overpriced giving normal weather. Throw in the fact that grain producers throughout the world now have access to the same seed technology that U.S. farmers do, and it would not be out of reason to expect acreage that has never even been planted to corn and soybeans coming into production. That could surprise everyone. On the demand side, many automobile manufacturers in recent weeks announced that they will be producing anywhere from 50-75% of their automobiles as electric ones by 2030. That’s only nine years from now! Obviously, that is not bullish for ethanol (corn) demand. Bull markets need bullish news to keep going up. But they need no news at all to collapse. At this stage, we still see little need to have feed purchases locked in any further out than June.