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Todd's Take
Monday, April 22, 2019 12:43PM CDT
By Todd Hultman
DTN Lead Analyst

The way trading has gone for corn and soybeans lately, I wouldn't blame producers for avoiding their quote screens, as the news has not been pleasant. Day by day, corn prices have dripped slowly lower, a modern form of water torture for those holding last fall's harvest. DTN's Corn Index of average cash prices closed at $3.37 Wednesday, down from its February high of $3.52.

The situation for soybean prices hasn't been any better, as Wednesday's close in DTN's Soybean Index sported a new 2019 low of $7.96 a bushel.

Fundamentally, it is easy to find explanations for April's lower prices, starting with more competition on the way from South America. A return of good weather to Brazil and Argentina in 2019 has USDA estimating a 600 million bushel (mb) increase in total corn exports from the two countries and a 276 mb increase in soybean exports.

For corn, USDA piled on the bearish argument with an early planting estimate of 92.8 million acres and surprised us with a higher-than-expected March 1 corn stocks total of 8.6 billion bushels (bb). Demand slowed more than expected and some additional 2018 harvest may have shown up late, but bullish hopes were deflated when USDA put its estimate of ending corn stocks back above 2.0 bb for 2018-19.

For soybeans, the encroaching bearishness has been less surprising as it is not too difficult to understand the implications of the world's largest soybean buyer having a 25% tariff on U.S. soybeans. In the fall of 2018, U.S. soybean demand saw some benefit from cheaper U.S. prices than Brazil prices. However, that advantage disappeared in late December as Brazil's prices have been more attractive for most of 2019.

U.S.-China trade talks continue and the diplomatic spin has been perpetually hopeful, yet never quite in reach of an actual agreement. With USDA estimating U.S. record high ending soybean stocks of 895 mb (or possibly more if exports don't get a late boost), potential buyers appear to be losing patience with trade talk optimism.

If you are familiar with how I look at markets, you know that the fundamental explanations given above are important, but are only part of the story in understanding crop prices. Markets are people and people's moods also play a large part in dictating where prices trade.

Gauging how people feel about a market is more elusive than counting bushels in inventory and can also involve factors outside the corn market. Thanks to CFTC's weekly Commitments of Traders reports, we can measure how speculators feel about a market by the positions they carry. For example, a simple way of noting bullish market sentiment in corn is to calculate what percent of all noncommercial (speculative) positions are long corn.

It is probably not surprising, given the bearish fundamental scenarios described above, but as of the most recent data on April 9, 43% of noncommercial positions are currently long in corn futures and 44% are long in soybeans -- both bearish indications of traders' moods.

Going back to 2000, this is only the sixth time speculators have been bearish in corn at this time of year. For soybeans, it is only the third time since 2000. This is also the most bearish sentiment corn has shown in April since 2002 and the most bearish since 2001 for soybeans.

Bearish market sentiment is common at harvest time after a season of good weather, but it is not common for markets to be so overly gloomy in the second week of April. The situation for soybeans may be a little more understandable as the trade dispute with China is clearly unique. If there is a ray of hope for higher row-crop prices, it is that previous episodes of April blues turned out to be unfounded.

Consider that in the five previous bearish situations for corn, four of them experienced significant rallies (also known as higher selling opportunities) before reaching harvest. In both of the previous bearish soybean situations, significant rallies took place.

In April 2002, USDA estimated U.S. ending corn stocks at 1.616 bb or 16.5% of annual use. The outlook for corn prices after four years of big crops and sluggish demand was so poor that only 38% of noncommercial positions were on the long side of the market.

Later in 2002, an unexpected stretch of adverse weather lifted DTN's Corn Index from $1.82 a bushel in early April to over $2.70 a bushel by early September. That is no guarantee that adverse weather will rescue prices from their lower levels in 2019, but it helps to know that previous unusual sour moods in April have generally not worked out well for noncommercial shorts, even in times that were considered more fundamentally bearish than today.

Given the excess soil moisture across the Midwest, drought is not a likely problem in 2019, but spring has already offered several challenges and who knows what else we may encounter this year.

The market's bearish fundamentals have their place. We can rule out $5.00 corn and beans in the teens. But we don't have to agree with the market's excessive bearish moods when history shows otherwise.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman


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