Christmas is approaching, and I am looking for a gift. But not your typical gift, because I am not interested in another tie. I want — make that need — the gift of a market signal that will take soft and languishing corn and soybean prices in the grain market and give them a reason to rally higher.
The 2015 crop will be remembered as a year when a big crop got bigger (see the latest World Agricultural Supply and Demand Estimates report), a year with a fast and efficient harvest, and a year that delivered late lows in harvest prices.
My Nebraska friend “Soy Roy” Smith is well-known for his search for a “dead cat bounce” off harvest price lows. It’s a fun thought — the idea that “even a dead cat will bounce if it falls from a great height.” But prices did not fall from a great height. This year, corn and soybean prices started at a low altitude and slowly sank lower. If prices are going to recover, we might be more realistic to think in terms of a U-shaped recovery — a gradual rise following the gradual decline — rather than the V-shaped recovery implied by a dead cat bounce.
The late lows in corn and soybean prices are interesting but not unprecedented. What do late lows portend for cash prices in the months ahead? I went back to 1980 to select years when the new-crop futures contract — December corn and November soybeans — made calendar-year lows in November or December. These “late low” years are not uncommon. I found 12 years in the corn market that met this definition, the most recent being 2008 and 2013. The soybean market has six years with late lows in the new-crop futures contract, the most recent being 2004 and 2011.
The conclusions from this simple study are not very radical. In years when price lows are established late in the fall, cash corn and soybean prices, on average, tend to rise into the spring, just as they tend to do in every other year. The price rise in corn appears to be modestly less robust than in other years, while the price rise in soybeans tends to be modestly more robust.
For each crop we have examples of contrary years, when prices continued lower into spring (2005 and 2008 in corn, 1990 in soybeans). But similar to any other year, cash prices are usually higher by May and June of the following year.
The study did reveal one modest nugget of new information. You remember some of those incredible years when prices screamed higher from harvest to spring? Think of 2007-08 in soybeans, or 2010-11 in corn — years when cash prices increased 30% or more by spring. Those type of years tend not to happen following a late low in the market — more evidence of a U-shaped, not V-shaped, recovery in prices.
My gift this season is a modestly optimistic view toward higher prices this spring. It’s not much, but I like it better than another tie.