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Todd's Take
Wednesday, November 22, 2017 11:56AM CST
By Todd Hultman
DTN Analyst

USDA's latest estimate of 2.49 billion bushels of U.S. ending corn stocks represents 17% of annual use or an extra 63 days of supply. If USDA is correct, that will be the highest ending stocks-to-use ratio in 12 years and sets a bearish table for this winter's prices.

The other side of the coin is that cash corn prices have a strong seasonal tendency to trade higher from the end of November to the end of May. For a reminder on how that worked, "Corn's Seasonal Tide" from March 14 can still be read at http://bit.ly/….

Research over the past 24 years showed cash corn prices increased a total of $8.40 per bushel when held for the six months following November. The gain worked out to an average of 5.8 cents per month, which should be enough to cover storage costs for most and still allow a little left over.

Given this year's heavier than usual estimate of domestic ending corn stocks, I decided to dig into the seasonal data and see how corn prices did in years when USDA's stocks-to-use ratios for corn were 15% or more.

Going back to 1993-94, there were nine seasons when U.S. ending corn supplies equaled or surpassed 15% of annual use. Six of the nine seasons showed a positive gain in the six months after Nov. 30 and all nine seasons resulted in an average gain of 7%.

The past doesn't tell us how prices will do in the upcoming six months and we haven't reached Nov. 30 yet. But, if we jumped the gun and used Friday's close of $3.06, a 7% gain would translate to 21 cents per bushel or 3 1/2 cents a bushel for each of the six months held -- not quite enough to pay storage costs for most.

Three of the nine years showed losses, the largest of which was -12% in 1997-98. Three of the nine years showed positive gains of more than 15%, which would have likely made storing corn worthwhile. The largest six-month gain was +28% in 2005-06.

The overall lesson here is that corn still showed a bullish seasonal influence, even when corn supplies were heavy. There is a reasonable chance corn prices will trade modestly higher by May 2018, but unless one has a low storage cost, it may still be difficult to come out ahead holding corn.

Finally, the 28% gain of 2005-06 reminds us that while this season's heavier supply makes it more difficult for corn to find willing buyers, it does not disqualify prices from the slim possibility of a bullish rally. Even the highest ending stocks-to-use ratio in 12 years cannot remove uncertainty from the mix of possible factors over the next six months.

For now, the trend in December corn remains down, but the aggressive commercial buying response to the big jump in bearish noncommercial bets shown by CFTC data as of Nov. 14, suggests price support should be near.

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

Follow him on Twitter @ToddHultman1

(CZ/BE)

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