Posted by: usset001 | April 7, 2009

Corn Price Seasonality – Does Ed disagree with Richard Brock?

Cash Corn Seasonality

Cash Corn Seasonality

I received an interesting question and comment from an Indiana farmer. He read my column titled “Hail the ‘Too-Too’ Season” in the late February edition of Corn & Soybean Digest. In this column I tried to explain why new crop pricing opportunities tend to be better in the spring. On the very next page is Richard Brock’s column and…  maybe I should let him ask the question.

“I read your column in the late February [edition of the] Corn & Soybean Digest and don’t argue opportunities can be good in the spring time-frame for pricing new crop.  Interesting to read the next page by Richard Brock and look at the long term seasonality highs in corn prices (see accompanying chart from Richard Brock of cash corn in Central Illinois).  [I see] a huge difference in the best time-frame for getting the best price of the year. What do you make of the data in Rick’s report?”

On one page of the Corn & Soybean Digest is one “expert” (me) expounding on the value of spring sales for new crop pricing. On the next page is a different “expert” (Richard Brock) showing the high probability of old crop prices at their highest levels during the summer months. Let me see if I can explain the differences…

  1. Richard Brock is looking at corn seasonality based on the history of old crop cash prices. I analyzed the seasonality of new crop futures prices. There is a difference – the old crop basis can, at times, do some funny things in the summer as the crop year comes to close.
  2. Brock’s figures analyze data from 1970 forward. I look at 1990 forward. The difference here is large. For example, Brock shows the highest cash corn price occurring in June in 7 of 38 years (18%). Look closely at the years and you will see that 6 of the 7 years occurred before 1990. In August, only 2 of 7 high years occurred after 1990. September is the best example; Brock shows the cash price high in September in 24% of observed years. Only 2 of the 9 years shown occurred in the last two decades (post 1990). Am I claiming that there is something “better” about my 1990 forward time-frame? No, I can’t and won’t make that claim. But Brock’s analysis can and will look quite different if you view it from 1990 forward. I prefer to keep my view long (about two decades), but not too long. Government programs were quite different 25 and 35 years ago and that can have an impact on price seasonality.
  3. Brock and I certainly agree on the month of July. “July makes the corn market” and when the weather is not right, we can get a large and sustained price rally. Please check out my April column in Corn & Soybean Digest (coming soon). I talk about Hank Holder, a farmer who holds grain in storage too long. In some years (about 20-25% of years) Hank does great – receiving the highest price among his post harvest marketing peers. It is the other years that create concern. When July weather is not stressful (and most are not – that is what makes the corn-belt so productive), Hank suffers and suffers greatly. His bad years far outnumber the good years and his results over time bear this out.

Responses

  1. I agree there is a huge difference between old crop cash prices and forward contracting new crop sales. I am not sure if Brock’s number includes any cost of storage either. I assume not…………If one views almost any given day what is corn worth today versus 8 months from now 90 plus percent of the time it is a carry and therefor worth more; add basis component that should firm when there is less supply i.e. the summer. So corn should based on things equal always be worth more in the summer. If it isn’t then (future) prices have actually went down from the starting point ….at least in my opinion.


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