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Market Commentary for 10/30/23

Jon Scheve with weekly market commentary made on October 27, 2023

Corn finished the week down 15 cents and was nearly 30 cents off the highs from last week. Harvest pressure may finally be hitting the corn market. The commercial short positions in the market, which the trade usually views as farmer sales, are at the lower end of the range of the last 10 years. This should be concerning to unsold producers because it means farmers are way behind on sales and any futures rally may be met with increased sales pressure. It could also mean the low for the marketing year is not in yet.

A Historical Look at December Corn Lows

In 8 out of the last 16 years December corn has hit a low for the calendar year after September 1st. Half of those lows occurred in September and the other half of those lows came in November as seen in this chart:

So far, the low for the year was on September 19th at nearly $4.68. The concern moving forward is that December corn could still find the low for the year in the month of November. Even if it does not find a low in November history shows that in two of the years when the September low held for the year, corn’s value by late November was within 20 cents of that low. The other two years had good rallies, but the lows in those years were in the lower $3 range before the rallies began.

In the last 33 years, corn’s low for the year happened the most in November at 33% of the time.

Soybean Price Potential

Beans remained range-bound this week, closing only 5 cents lower than last week but up 10 cents from two weeks ago. With harvest nearly complete and beans stored away, it could be a while until farmers are willing to sell.

Reasons to be bullish beans:

  • US export estimates are forecasted to be near trade war levels.

  • Current carryout projections are the tightest in 7 years.

  • Soybean meal rallied almost 20% in the past month because Argentina is expected to have low supply until March.

  • US processors will likely be running at full capacity and need a lot of beans to make up for Argentina’s short falls.

  • China may also need to buy additional beans to crush to make up for Argentina’s lack of meal production as well.

  • Recent rains have caused the Mississippi river to rise slightly, which should help lower freight costs and make the US more competitive globally.

The main reason to be bearish beans, is that world stocks are ample. Brazil had a monster sized crop, and this may lead to less of a need for US exports longer term.

Analyzing the Soybean / Corn Ratio

The corn and bean markets may take different paths after harvest. Corn’s carryout looks burdensome, and farmers are extremely under-sold compared to other marketing years. It seems that farmers have sold nearly an average amount of beans for this time of year, despite their carryout being much tighter. This could cause the soybean to corn price ratio to trade at unusual levels.

The soybean to corn price ratio is factored by dividing soybean’s futures value by corn’s futures value. In the last 20 years, there were only four marketing years when the price of beans was 3.2 times the value of corn or more. See the chart below:

The years that saw a ratio above 3.2 were years that had tight bean supply or extremely burdensome corn reserves. The current carryout estimates point to the possibility of both burdensome corn stocks and potentially tight bean carryout in the United States. If the 3.2 ratio happens again, corn could stay at $4.80 while beans trade above $15. Even if corn fell to $4.40 next month, at a 3.2 ratio $14 beans is still possible. And if the ratio expanded to 3.4 as has happened in other years, $15 is still theoretically possible if corn would continue to trade lower.

Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387


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