A word on seasonals...
I’ve seen a number of charts similar to this on social media in the past few weeks, implying that corn prices typically break down in mid-June. While I certainly don’t disagree that its common, I do think its a good time to remember the words of the famous 20th century physicist Murray Gell-Mann, “Physics would be really hard if particles could think.”
Price patterns are not physics. There is no gravity holding them together or atomic forces pushing them apart. The ‘Laws’ of supply and demand are neither enforced nor enforceable.
What we see above are repeated patterns. Humans are incredibly good pattern recognizing machines. We are so good that we often recognize patterns that aren't there. That’s why we need more than patterns and technical type indicators. We need to understand what is going on to be able to deduce the cause of the patterns, and make guesses about how often they’ll recur.
If you mouse over the chart above, you’ll see how many years of December futures data are used make each average. The 5 year line is the average of 2020-2024 years. I’ve arbitrarily normalized the graph so that each June 15th, prices are 4.39, roughly the current price of corn.
Let’s start with this, why would these patterns exist in new crop corn? Simply because June and July are when a lot of uncertainty about the condition of the crop is created and resolved. Whether it is very fast planting pace in May or heavy rains that push planting into June, both affect prices. In July, will it be extremely dry in critical growing areas, or that perfect mix of hot days, cool nights, and twice weekly rains? As this critical 60 day period (June-July) passes, the eventual yield comes into focus. Most years, yield is at or above trend line projections, and as the worry of a short crop declines, so do prices. But some years, things go from good to bad, or bad to worse, or even good to bad to even worse.
As Don Close would ask “So What?” Scroll over the plot above, and some things stand out. Periods with the largest price declines after June 15th are also those with the largest run-up in prices leading to June 15th, which makes sense. Also, the longer the period examined, the less the change leading up to or away from June 15th.
Therefore, don’t sweat it too much. Yes, we are near the end of the crop year. Storing corn (or soybeans or wheat) across crop years is nearly always a losing proposition, so those with old crop bushels should be getting them priced sooner rather than later. If you are going to bet on a big drought in the US, the best way to do that is to purchase out of the money call options, not hold on to physical corn.