Seasonal Odds Favor Early TopSeasonal Odds Favor Early Top
Seasonal odds in the cash corn market have been fairly consistent since 1970Back-to-back crop years normally peak at the same time or near the same time if the bull market has been driven by poor yieldsSupply-driven bull markets typically peak during or just after harvest and have a long tail
October 25, 2010
With all the news on poor corn yields becoming more evident, it’s typical that grain markets peak when the news is most bullish. There are certainly very few people in the world who are unaware that this year’s corn crop has been disappointing.
Seasonal odds in the cash corn market have been fairly consistent since 1970. As you can see by looking at the charts, the corn market peaks early or late and bottoms early or late. Few major turns in the corn market occur between November and May. The vast majority of the tops in the cash corn market occur between June 1 and the end of September. The marketing year for both corn and soybeans begins on Sept. 1.
This past year the top of the corn crop was in August. Twenty percent of the annual highs have occurred in August since 1970. If you exclude 1971 and 1972, which were the years of the beginning bull markets, the year following a peak in August the market peaked in September three times, March once and November once. The significance of this is that back-to-back crop years normally peak at the same time or near the same time if the bull market has been driven by poor yields – the majority of the reasons for an August/September top.
You could certainly argue with the tight supplies that the top in corn may not come until the end of next summer, such as occurred this year. That is a possibility but I don’t think a probability.
If history repeats itself, the top of this market will likely be established before next spring with a slight chance that it occurred in September.
Markets always peak when the news is most bullish and well known. Supply-driven bull markets typically peak during or just after harvest and have a long tail. Whenever this occurs, you’ll hear everywhere “this one is going to be different.” They almost always are different – but the results are similar. Prices are profitable and this old rule of thumb should be used for marketing at least part of your production.
With the bull market in corn, you’d think that ethanol margins have been hurt. Not so. As a result of lower inventories and little or no expansion, ethanol prices have outpaced corn to the upside.
With E15 coming and strong demand for DDGs from China, the next marketing year should likely be the most exciting ever. Price volatility will only get worse, so fasten your seat belts and have plenty of Alka-Seltzer on hand. Risk will be high…but so will the opportunities.
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