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Todd's Take
Monday, April 15, 2019 2:50PM CDT
By Todd Hultman
DTN Lead Analyst

Just a few months ago, we didn't expect to be talking about another major winter storm across the Northern Plains in early April, but here we are -- reporting heavy snow totals across South Dakota, southern Minnesota and Wisconsin, accompanied by high winds, ice and power outages in surrounding areas.

One might think such a late winter storm would rally corn prices on the thought that it's going to be difficult to plant by the end of May, but that's not how prices are behaving. Traders of December corn looked at Thursday's weather map and yawned, allowing prices to settle 2 1/4 cents lower at $3.88 1/2 on Thursday afternoon.

In fact, trading in December corn has been one big, hibernating yawn ever since harvest. December corn prices have been churning within a 25-cent range, reaching from the September low of $3.83 1/4 to the October high of $4.08.

During this time, the fundamental outlook for corn prices has shifted lower as a bearish report of March 1 corn stocks and the anticipation of larger crops from Brazil and Argentina helped persuade USDA to increase its estimate of U.S. ending corn stocks to 2.035 billion bushels (bb) for 2018-19, the highest USDA has projected for the old-crop season so far.

Fundamentally speaking, it is understandable for December corn to be trading near its lowest prices of 2019 based on what we know. The catch is that in most years, we eventually discover that the things we thought we knew in the first four months of the year turned out to be misleading from how the next five months play out.

I wrote about this on April 24, 2018 in the Todd's Take, "Last Call for Row Crops?"

Click to read the column here: https://www.dtnpf.com/…

Updating the same research, I found that going back to 2000, the direction December corn traded each year from Jan. 1 to April 30 was opposite to the direction December corn traded the next five months in 14 of the 19 years, or 74% of the time.

More importantly, the range of trading in December corn from May 1 to Sept. 30 was 75% larger on average than the average range of the first four months of the year. Generally speaking, corn prices don't usually move much until May, and that's when you want to buckle up.

I realize some will find it odd I'm comparing a four-month period to a five-month period, but there's a fundamental reason: I suspect that many producers make their risk management decisions in the first few months of the year when they have time to attend talks and maybe even study markets a little.

However, I have long noticed that much of the winter's fundamental information is often a regurgitation of the previous harvest. Other than South America's crops, there is little new to be learned in the first four months of the year. Making risk management decisions that early is like betting your hand before the cards are dealt.

In the current situation, December corn closed Thursday at $3.88 1/2, roughly 2 cents above the midpoint for December corn prices last year. With DTN's Corn Index of national cash prices 23 cents below the May contract on the board, $3.88 1/2 in December is not especially enticing for producers wanting to make forward sales in 2019, at least for most locations around the Corn Belt.

Without that elusive crystal ball that I never seem to have, it is difficult to say which way corn prices will go in the next several months, but here are some things we do know.

December corn prices are down 9 cents in 2019, but judging from past years, we should not be overly influenced by the loss or fooled by the lack of volatility to date. December corn has a history of making bigger moves after May 1 that usually don't go the same direction as the first four months of the year.

Given the excessively wet conditions in early 2019, the odds for drought look slim to none, but there is a legitimate threat of losing productive acres and/or yield due to too much moisture. It is still too early in the season to know how things will go, but after this week's winter storm, South Dakota and southern Minnesota are going to have narrow corn planting windows at best.

If corn planting does become a bigger problem than usual in 2019 (and that is still an "if"), the most bullish feature will be that it could happen at a time when managed futures funds have already made big bearish bets. CFTC said funds were net short 263,768 contracts as of April 2, which is near their largest bearish bet on record.

Holding such a large commitment to the short side of the market and having no corn of their own to deliver, funds are bluffing based on the hope that bigger crops in Brazil and Argentina will be enough to cash in. But the U.S. corn market is nearly twice as big as Brazil, Argentina and Ukraine put together -- and the U.S. season is just getting started.

As I've said for corn prices before, get ready to buckle in. If the past is any guide, things are about to get volatile.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman


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