At Grain PhD this is the most common question we’ve heard in recent weeks. While I’d love to answer this question with a firm yes, the fact of the matter is we do not know, no one does. To date the low in corn prices was made on Aug. 31st, ironically the same date as last year. Recall last year corn prices staged nearly a $.45 per bu. rally following the Aug. lows. History however shows us that last year was more often the exception than the rule. Only twice since 2000 has the seasonal low been made in the month of Aug. Furthermore the average seasonal corn low is 25% off the summer high. To date the Aug 31st low was off 17.5% from the July-17 high. History also suggests the final size of this year’s corn crop is likely higher than the USDA estimate in Sept-17. Since 1990 the USDA lowered their production estimate in August only to raise it in September a total of 5 times. This year being the 6th. In 4 of those years the final production figure was above the Sept. estimate, while being lower only 1 time.
In terms of a seasonal pullback, a similar argument can also be made for soybeans. Since putting in the seasonal highs in July, soybean prices had pulled back 12%, less than the historical average of a 20% pullback. A notable difference from corn however is the size of the crop moving forward, with the size of the soybean crop being a bit more random. Since 1990 the USDA has raised their soybean production in Aug. and Sept a total of 8 times, this year being the 9th. In 4 of those years the final production was above the Sept. estimate, while being lowered 4 times. Also supporting the argument that the seasonal lows have been established for soybeans is simply the fact that prices have rebounded well off the current lows. As of this writing this is not the case for corn. My sense is the market is suggesting the soybean crop is getting smaller, not larger. Finishing rains across key states have been scarce since early Sept.
Whether the seasonal lows have been put in already or not will largely hinge on the final size of this year’s harvest. If the recent lows are violated, we do not believe we are poised to make another sharp leg down. Ultimately Econ 101 principles will hold and that the best cure for low prices is just that, low prices. We should start to see demand improve as US prices become more competitive globally. In addition we’ll likely witness a significant drop in corn acres in South America this upcoming growing season, while soybean acres are likely to increase by only 2 – 3%.
Given the uncertainty we at Grain PhD cannot stress enough the importance of knowing your production costs and constructing a comprehensive marketing plan. This is a time of year when farmers become extremely busy but getting a jump on your 2018 plan now will only help you achieve your profit objectives later. Please feel free to contact Grain PhD for your free consultation at firstname.lastname@example.org or 844.GRAIN01, and check out our educational materials and daily market commentary at www.grainphd.com.