Richard Brock

October 1, 2009

3 Min Read

Markets have certainly been wild over the last couple of years, but the one thing that is still at least somewhat reliable is the seasonality of the cash corn market. As the charts show, history indicates that corn prices have extremely high odds of either making their peak early and their low late or the low early and the peak late. The best marketing opportunities and purchasing opportunities typically occur between July and October.

With that said, as the table indicates, in the 2008-2009 marketing year corn prices made their high in September (marketing year for corn and soybeans begins on Sept. 1), which has occurred 26% of the time since 1970. The low in the cash market last year was in December, which had only occurred once prior to then since 1970.

THE TYPICAL REASON for the highs and lows coming around the Sept. 1 time frame in corn is purely a function of weather. If the growing conditions are very poor late in the year, the cash market will rally sharply giving you a high for that marketing year late and a high for the next marketing year early. The highs for marketing years normally come side by side as do the lows, which are normally caused by extremely good growing conditions and large carryovers. Those will bury the cash market late in one marketing season and make the lows for the next marketing season early.

That brings us to this year. Forty-four percent of the lows in the cash market have occurred between Sept. 1 and Oct. 31 since 1970. That's pretty high odds. What could cause such an occurrence this year? Several factors, in my opinion, make the odds of this happening fairly high. The first of which is an enormous carryover from the 2008-2009 marketing season to the tune of 1.72 billion bushels.

Secondly, even though producers are concerned about an early frost, it's already too late for that to cause much damage to this year's production. Odds still favor a record high corn crop this year. As a result, storage will be at a premium this year as both old crop and new crop try to find a home within an eight-week time span. This will pressure the cash market resulting in a seasonal washout low sometime during the September/October time frame.

STRONG DEMAND

Once the grain finds a home, most grain bins are going to be under lock and key until after Jan. 1. With ethanol plants that were mothballed as well as new construction and expansion projects nearing completion, the demand for corn to be used in ethanol plants will be increasing and thus bidding aggressively to get this corn out of storage. Export demand will be sluggish but still should maintain the historical level of 18-20% of the crop. Livestock demand may hurt corn usage later in the year, but not in the first six months.

The bottom line: Don't make panic corn or soybean sales between now and the end of October. You will likely have much better marketing opportunities in late December or early January. Buyers of corn and soybean meal should look at making significant purchases by the end of October.

Richard Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 orvisit www.brockreport.com.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like