Jon Scheve with weekly market commentary made on May 24, 2024
Wheat is the market leader right now. Dry weather throughout Russia, Ukraine, and potentially Australia has global wheat traders on edge. Some market participants are suggesting wheat may be removed from the feed equation and replaced with corn around the world, possibly sparking a corn rally.
Wheat / Corn Spread
Wheat was trading at a $2.32 per bushel premium over corn this week, which is much wider than normal as this chart shows over the past 15 years.
While the spread could go wider, history suggests that it is unlikely to be by much or for very long. Even when Russia invaded Ukraine, wheat traded significantly wider for only a short time. So, does that mean wheat will drop in value because harvest is approaching? Maybe, but corn could also rally because of demand or along seasonal trends.
Corn Seasonal Trends
The chart below shows the average seasonal price of corn over the last 15 years in blue and the last 5 years in green.
Both lines are similar and suggest that the highest price for corn tends to be in late May and early June.
However, digging deeper the corn price each year doesn’t look exactly like the 5 and 15-year averages. Here are the corn prices for 2019-2023.
In 3 of the 5 years, December corn finished the year lower than ANY value traded in May or June.
From 2014 to 2018, December corn finished the year below ALL May and June values EACH year as seen in the chart below:
Between 2009-2013, December corn finished the year lower than ANY May or June values in 3 out of 5 years seen here:
Basically, in 11 of the last 15 years (73%), December corn finished the year lower than ANY value traded in May or June. The only years it didn’t were 2010, 2012, 2020, and 2021. So based only on historical trends, it is much more likely that selling December corn on any day in May or June will be a better decision than waiting until the fall to sell.
Comparing Corn and Wheat
In the four years when corn traded higher in December versus May and June, the wheat to corn premium was only over $2.20 per bushel in two years, 2010 and 2020. Both years were outliers for corn though, with corn hitting its low in the summer and rallying over the next few years. In 2010, there was decent weather until very late summer and 2020 followed the covid shutdown.
One similarity between the two years was a significant drop of more than 750,000 acres of planted corn from the March intentions report to the June 30th plantings report. A drop that large has only happened in 3 of the last 15 years, 2010, 2019, and 2020.
Weather
Only 10% of the US corn crop is currently in drought conditions, a 2% drop from last week. This is down significantly from recent years where over 25% of US corn was experiencing dry conditions at this point in the year.
Bottomline
July weather throughout the corn belt will ultimately be the deciding factor in corn values and price direction. The June plantings report could also impact the market as well.
Historical trends suggest selling some corn over the next 6 weeks may be a prudent risk management strategy, especially if there is a rally during that time. And while past performance is never indicative of futures results, there is nearly a 75% chance that making a trade on ANY day in May or June will be a better decision than waiting to price corn in the fall.
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
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