Now that corn is trading approximately $1.50 off of its highs established last September, no doubt many people wonder what this market is really worth. At least subconsciously, most people make marketing decisions on a price comparison. Unfortunately, on the way up, the comparison is the lowest price of the last six months, and on the way down it is the highest price of the last six months. It’s how long we can remember. As Will Rogers once said, “I have a great memory, it is just short.”
It is of course also very logical to compare to your cost of production and that is of utmost importance in the long term. While that is always a factor, it is for many people secondary when making a marketing decision. Now let’s take a look at how logical comparing either to the low or high really is.
The long-term monthly chart of corn below shows an interesting story. If you look at the data of the last 10 years, nearby futures contracts have had a low of $1.86 and a high of $8.32. Quite dramatic. The midpoint of that range is $5.09; the top one-third is $6.17 and the bottom one-third is $4.01.
Now let’s look at a timing perspective. Since 2003 to the end of 2012 (10 years) nearby corn futures have spent 80 months trading in the bottom one-third of that 10-year price range and only 24 months in the upper one-third. That goes along with long-term history – markets always spend more time making bottoms than they do making tops. This one is not going to be any different.
So what do we compare to? One starting point is the midpoint of the last 10 years at $5.09. History would at least tell you making sales above $5.09 would at least put you in the upper half of the 10-year range – although $7.50 is a lot better!
What is the point?
My point is this. In the last three months my column has focused on the long-term bear move that corn is currently in. The market peaked in September, and the odds of getting back to that level are slim to none and slim left town in October. Our downside objective in corn is still $4 or lower. Making price comparisons to the top is not realistic. This move started at $4, and while viewers do not want believe it, technically that is where this market is headed. All we need to do is get the corn crop planted. Demand is the key issue – and it has already fallen apart.
Many producers are going to have a difficult time making forward selling decisions this year for two primary reasons. Forward selling hasn’t worked at all in the last two years. It has paid to do nothing. Secondly, for many producers if they forward contracted 20% or 30% of the crop due to the drought, it became 40% to 60% of their crop or more. That is tough for anyone to forget.
All I can say is that no two years are the same in marketing. Current corn and bean prices are very profitable and still very high relative to the last 10 or even five-year averages. If this crop gets planted, waiting till July is going to be too late! Aggressive selling did not pay off at all last year – but odds are high it will this year.