By Todd Hultman
Thanks to hot and dry weather earlier this summer, the seasonal high in December corn came later than usual this year when prices peaked at $4.17 1/4 on July 11. Since then, it has been all downhill for December corn. And, after prices broke a new low for 2017 on Aug. 10, it seems fair to say that corn's usual bearish seasonal influence is again at work as we head toward fall harvest.
The overall pattern is similar to what corn prices experienced the past two years. But if we look at 2016 as a recent example, this year's bearish arguments for corn don't look as strong. For that reason, I suspect corn prices won't fall as far as what we saw last year.
To explain, let's go back to last summer and recall how noncommercial traders piled into the long side of corn after Brazil reported problems with dry weather and the western Midwestern U.S. experienced hot temperatures in early June. Noncommercials amassed 362,525 net longs in the futures market by mid-June as the DTN National Corn Index peaked at $4.01.
As often happens at that time of year, the weather turned more favorable after mid-June, and speculators scrambled for the exit door. Not only was there a mountain of long futures contracts to liquidate, but the corn crop was headed for a record harvest of 15.15 billion bushels. The combination of those two factors took cash prices sharply lower, to $2.73 by the end of August.
When we look at how corn prices have traded in 2017, we see a similar bullish response to hot weather in early July, but the level of bullish enthusiasm was far less. The cash price peak of $3.57 on July 10, 2017, was far below last year's $4.01, and noncommercial net longs only reached about half of last year's level, totaling 177,147 as of July 18.
The latest CFTC data shows 103,259 noncommercial net longs in corn as of Aug. 15, so there is still some bearish pressure for speculators to liquidate as prices trade at new lows in 2017. But it does not compare to the much larger liquidation that took place last year.
Finally, with a smaller U.S. corn planting in 2017, and the most adverse weather conditions the U.S. corn crop has seen in five years, there is no question that this year's harvest will be smaller than the record crop of 2016. USDA's August estimate of 14.15 bb seems high, but even that estimate is down a billion bushels from 2016's record.
I don't want to underestimate late-summer harvest pressure, because bad things can happen to prices when buyers disappear. But it seems fair to say that whenever this fall's seasonal low is made, it should happen somewhere above last year's $2.73. I have no crystal-ball guarantees, but forced to guess, national cash corn prices near $3 seem like a good area for this year's low.
Todd Hultman can be reached at firstname.lastname@example.org
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