The recent trading action in corn futures has been rather frustrating for bulls. While we have been stuck in a 25-cent trading range for five weeks now, we do believe there is reason for optimism that corn can break out of the range sooner rather than later.
As Mark Twain wrote, "history doesn't repeat itself, but it often rhymes."
A history lesson
In 19 of the past 20 years, the high price during the growing season for new crop corn futures exceeded the insurance price that was set in February. On average futures traded 57 cents, or 14.86%, above the insurance price.
Given this year's insurance price of $3.88, that would imply $4.45 which at this stage seems highly unlikely. The maximum high above insurance price was $2.48 which occurred in 2008 at the peak of the last commodity super cycle that ended abruptly due to the mortgage backed security crisis.
The one exception to trading above the spring price average was in 2001 when the summer growing season high was equal to the insurance price.
Maybe matching the spring insurance price is our best hope for now which would be a 55-cent run from here.
Another reason to look for a rally in the corn market is the managed money positions. The net Managed Money (fund) positon was short a net 214,679 contracts of corn coming into this week's trade. The only time they were this short or more for this week of the year was last year.
To be clear, funds are not near their record short (-344,185 contracts on 4/23/2019), but we are in a period of time where the managed money crowd does not typically carry a short position of more than 200k contracts. There are only five weeks since 2007 that managed money has been short more than 200k contracts during the May, June, July, and August time frame. That's only 2.25% of the time.
Weather could also start to take some bushels off the market as well. Heavy rains across portions of the midwest have producers talking prevent plant again this year. As of last Sunday, there were still 6.2 million acres of corn unplanted in IL, IN, MI, and OH.
For the economic reasons, we could see some of those acres go into to prevent plant. The PP date for the majority of the area is June 5th.
Reports out of the northern plains suggest that 2 million acres of corn could easily be put in to prevent plant due to saturated soils. North Dakota’s prevent plant date is May 31st. As of Sunday the 17th, 6% of North Dakota’s 2019 corn crop had yet to be harvested.
One last bit of optimism regarding the corn market is that the ethanol industry is coming back online. As the nation comes out of the lockdown due to COVID-19, miles driven are increasing which in turn increases demand for ethanol. Ethanol production last week increased 46,000 barrels per day while blender demand was up 14,000 barrels per day and ethanol stocks dropped 600,000 barrels. Corn used in last week's ethanol production is estimated at 68 million bushels.
History seems to be lining up for a move higher. Let’s hope Mark Twain was right and we get the seasonal bounce that market bulls have been waiting for.