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Market Commentary for 10/9/23

Jon Scheve with weekly market commentary made on October 6, 2023

Corn had been trading sideways between $4.77 and $4.89 since August 11th until Friday when it never dropped below $4.92.

Technical traders have suggested the seasonal lows are already in for fall. They say Thursday’s breakout and corn struggling to trade below $4.75 are reasons why higher values should be coming soon.

Seasonal traders are talking about a trend where 12 in the last 15 years corn traded higher in the second and third weeks of October. But in 3 of the up years those rallies were for only a couple of cents. There were 7 years where the corn board still drifted lower into the end of November. Except for 2011 and 2010 none of the other rallies saw gains of more than 25 cents over the two-week period. The average gain from that seasonal trade has been only about 13 cents.

Fundamentally the corn market could struggle trading higher moving forward. The main reason is the stocks to use ratio as seen in this chart:

Over the last 30 years, the stocks to use ratio has gone from tight (below the red line) to abundant (above the green line) 4 times.

Every time the stocks to use ratio increased from tight to abundant (the orange lines) throughout the year, like 2023, corn prices dropped at least 30% and up to 42% from the year’s high to the fall low. The only exception was 1997, when it only dropped 15%. However, 1997 might not be a good comparison year because:

  • Prices in 1997 never rebounded to price levels seen in 1996.

  • It was right after the 1996 HTA debacle.

  • It was well before the ethanol mandate.

  • South America had not yet become the global export powerhouse that they are today.

2022 was also an unusual year because the stocks to use ratio was expected to be tighter than where it finished because the US export pace never hit early estimates due to the large Brazilian crop that was harvested in May.

So far this year, corn has only dropped 25% from this year’s high. And a decrease in total export demand is not helping, despite Mexico’s buying running 25% ahead of normal for this time of year.

That increased pace may just be grain buyers in Mexico trying to source grain before the GMO vs non-GMO trade issue that will come into play in early 2024. Regardless of the outcome of that trade dispute, it seems likely that Mexico’s corn demand could decrease after the new year. This could lead to corn values testing the bottom side of the market again. Are Yields Improving? More and more farmers across the US are telling me that yields are better than they expected 1-2 months ago. Plus, computer models are still indicating the national corn yield will be better than current USDA estimates. Now that the government will stay open another month, the October 12th USDA WASDE report will be released. If yields are raised in that report, the market’s price direction will probably change very quickly.

Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387


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