May 6, 2021
With both the May 2021 and July 2021 corn futures contracts taking out the $7.00 price level, the biggest question I’ve heard from farmers over the past few days is, “How high is this thing gonna run? Where and when will be the top?”
While it is nearly improbable to know for sure when the top will be, we can apply a few analysis tools to corn and soybean markets that might suggest approximately when and where that high may occur.
According to the 5 and 15 year seasonal partners provided by Moore Research Center, new crop November soybean futures have a strong seasonal tendency to top either between June 11-June 16 or July 9-13. New crop December corn futures also share a similar time frame for a seasonal summer high. The strongest indicator for a price high comes June 9-June 16, with an additional potential price spike July 9-13. Why is the tendency so strong during those two summer time frames? Two reasons, weather and USDA reports.
It is important to note that the seasonal highs timing for grains often coincides with important USDA reports. As you are aware, these reports give updates on both current and expected future supply of U.S. and global grains, along with demand. With old crop ending stocks being extremely tight, and the market unsure of how many acres of corn and soybeans will be planted this spring, each report will be scrutinized. Trade reaction will likely be volatile.
Mark your calendars. Here are the dates up the upcoming reports, and why each report will be significant. Wednesday, May 12 is a regular monthly supply/demand report. Traditionally the May report is a “dud.” However on this report, the USDA will offer the first glimpse of the 2021/22 crop year. They will use acres from the March 31 Prospective Plantings Report, and trendline yield. Trade will be eager to see how the demand categories fare compared to the 2020/21 crop year. Will demand be adjusted lower now that prices are high? Or, will demand remain as robust as the 2020/21 crop year. Ending stocks for both old crop and new crop are key. If the perception is that ending stocks are getting smaller, that will be supportive for prices. Or if the perception is that ending stocks are getting larger, that would be a reason for prices to potentially work lower.
The month of June has two important USDA reports for grains. The first is Thursday, June 10th. This is another monthly supply/demand report. Trade will watch the same aspects as the May report. The bigger and potentially more impactful report will be on June 30th. This is both the Quarterly Stocks report, and the final Planted Acreage report.
The March 31 Prospective plantings report surprised the industry with acres coming in lower than expected; corn acres pegged at 91.1 million acres and soybeans are pegged at 87.6 million acres. Trade is already anticipating that the final planted acres in the United States this spring will be higher than those estimates, but how high is the important question. 93 to 94 million corn acres planted would likely put in a price high for corn futures (unless weather is adverse this summer) as ending stocks would swell toward 2 billion bushels assuming trendline yields.
Soybeans still can use every planted acre they can get based on current demand and ending stocks. With 90 million acres planted, trendline yield, and no change to demand, ending stocks would still get smaller than what they are now, for the 2020/21 crop year.
Weather continues to be critical to monitor in the weeks and months ahead. While seasonals usually are a good indicator for anticipating where price highs may occur, Mother Nature trumps. Heat during pollination or extreme heat in August during the critical pod filling stage for soybeans could continue any bull market, much like we saw during the 2012 drought, when prices did not put in highs until mid-August.
Looking at long term charts, it appears that a re-test of the 2012 price highs seems achievable. For front month corn contracts (old crop), $8.00 corn seems like the next target. Should that get achieved, the overzealous next upside target would be THE high from 2012, which was $8.43-3/4!
For soybeans, the upside target for front month contracts (old crop), is $17.00, and if that can be achieved, upward momentum may take prices up to the 2012 high which was $17.91-3/4!
Obviously we won’t know a black swan until it swoops in. Black swans could be things that add fuel to the bullish fire or put the bullish fire out completely. Items I’m watching are continued relations with China. What if they are stockpiling food because they are about to start a major international conflict? What would happen if the entire norther hemisphere had poor weather conditions this summer? Three fourths of the world’s corn is grown in the northern hemisphere, and the United States grows one third of ALL the corn in the world. What about global food price inflation? The value of the U.S. Dollar?
The price volatility is only going to grow. Continue to manage both the opportunities and risks ahead. Remember the daily trading price limits for grains has expanded. Also, the funds are now legally capable of owning nearly twice as many contracts as prior years. Start thinking and planning how you will manage protecting unpriced new crop bushels. We have been in a bull market for grains for nine months. What goes up, eventually comes down. And often times, you won’t know the market has topped, until prices have already dropped, and the price opportunity has passed. Be strategic with your thinking and marketing.
Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and [email protected]
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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