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Soybeans are extremely cheap, as producers evaluate acreage mix decisions.

Duane Lowry, Senior Risk Manager and Market Research Director

February 5, 2020

5 Min Read
Thinkstock/stevanovicigor

Here are the lowest December corn prices seen during the Jan-March timeframe during each of the past 5 years:

  • 2016= $3.7375,    

  • 2017= $3.7825,    

  • 2018= $3.7975,    

  • 2019= $3.8425

  • 2020= $3.88 (so far, through Feb 3).

When looking at soybean vs corn inter-market spread charts, soybeans are at the very bottom side of price relationships experienced since early 2007. This not only greatly diminishes producers' desire to expand U.S. soybean acreage, but it also should be a caution about pressing the bearish side of this market. Current historical price relationships make soybeans very vulnerable to a Black Swan event.

According to price history since 2016, these are the facts that I see:

  1. January 2020 has produced better “spot” corn values than any January since 2016.

  2. Prices have largely been in a basing pattern since fall 2014.

  3. If anything, it would appear that prices have been experiencing a pattern of “higher lows” since the “tin can harvest” of 2016. A tin can harvest is the August-September liquidation of old-crop inventory to prepare space in the bins for the new harvest.

Here are reasonable conclusions that I think bear serious consideration:

  1. Including a preliminary private guestimate of what the May 2020 USDA 20/21 balance sheet projection might look like, the past 5 year’s low of the new-crop December corn contract during the Jan-Mar timeframe have all been within a 10-cent trading range, despite the fact that Stocks-to-Use ratios have ranged from 11.5% to 16.9%. Despite widespread focus and fear that 2020 will see a huge jump in acreage and carryout, (projections could be as high as 2.5 bil in 20/21), Dec 20 is currently trading 10 cents above the bottom price levels seen during the past 4 years. This is consistent with what I mentioned above, we appear to be experiencing a trend of “higher lows” since the fall of 2014. Each year, from 2016 to present, the Jan-March low of the December contract was higher than the previous year’s low for that timeframe. And, so far that statement is true about Dec 2020 also.

  2. After nearly 5 1/2 years in a basing chart pattern, along with some characteristics that imply “higher lows”, don’t we have to give some serious consideration that charts could be staging for an upside breakout?

  3. Since the “tin can harvest” lows of 2016, do you know when the highest price was achieved? Last year! Are we in the process of the “spot” corn charts rolling up?

Consider the lows for the year since 2016:

  • 2016= $3.01,    

  • 2017= $3.285,    

  • 2018= $3.2975,    

  • 2019= $3.355,    

  • 2020= $3.7525 (so far)

Is that an interesting pattern of “higher lows”?  

Balancing upside surprises with need for profit
Producers have been facing challenging times for the past several years. Working capital has been reduced and many have been forced to tap into land equity and delay equipment purchases. Last year was a major problem, because for many it was the first time in the past several difficult years that they faced a sizable decline in their yields from their past 4-year average. Last year, they could not rely on bumper yields for solvency and profit.

This has created a situation during the past 60 days where lenders are fearful and creating new and higher hurdles for farmers to secure 2020 financing. Final financing agreements are being secured later than normal and an unusually large amount are still not finished as of Feb 1.

We have a backdrop of conditions in farm country where producers are fear-filled and seemingly almost desperate to capture a profit on 2020 production. Will this lead to producers selling too much, too early? How can the producer balance the need for protected profit, while not getting trapped selling into what could be the year’s low for 2020? I realize this seems like a bold statement and a warning that nobody will take seriously right now.

Any novice chartist knows that such a pattern of rising bottoms can reach a point of acceleration when all the eyes begin to escape the embrace of the microscope and realize something much bigger has been unfolding around them and they didn’t recognize it.

Consider thiswe have just completed the long-awaited Phase One trade deal with China and nobody cares. In fact, it is even worse than not caring—they fully believe China won’t even return to their previous buying levels in 2017, let alone increase them by $16 billion. That is just how much traders have their eyes pressed to the microscope! I believe we are in a timeframe where we need to pay serious attention to what I just described.

Possible Marketing Plan Adjustments
It is still reasonable and prudent to take a defensive role and secure some sales at profitable levels this spring if/when they are presented, but here are some ideas to ponder while you develop and execute your 2020 marketing plans:

  • It is very possible that prices could have much more upside potential during the next 15 months than current trader sentiment suggests. Yet, many producers and market advisers are pushing for much more aggressive pricing and a desire to sell it sooner rather than later. I tend to think such will be a trap this year, but I will hold off on judgment about that for a while.


I am somewhat trying to prepare a marketing plan that has respect for the potential for a Black Swan event to completely shake-up the bearish mentality that has dominated the grain markets during the past 5 years. Just like George W. Bush’s 2006 State-of-the Union address put into motion events/conditions for a new ag price paradigm, I wonder if Chinese demand doesn’t have the same potential, with Phase One just being the triggering point that unleashes a period of rising global demand, both in China and elsewhere. This approach to a marketing plan doesn’t mean that you shouldn’t seek profitable levels to make sales, but it does encourage you to consider tools from the marketing toolbox that you may have seldom used. I believe 2020 marketing success will be significantly influenced by the choice of tools you use to establish a marketing and risk management plan.

Duane Lowry

Senior Risk Manager and Market Research Director

Silver Creek Commodities

Email= [email protected]

Twitter= @DuaneLowry

Phone/text= 563-419-1300

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Duane Lowry

Senior Risk Manager and Market Research Director, Silver Creek Commodities

Duane has been writing daily market commentary since 1987 and currently works directly with producers to market their grain, manage risk, and optimize crop insurance decisions. He has been involved in the futures industry since 1978, working as an assistant manager at a large Iowa cooperative, to a floor trader and broker in Chicago. Duane’s deep experience with basis, spreads and market analysis sets him apart as a crop insurance agent and risk management consultant, helping him optimize producer marketing decisions.

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