A winter of grain market discontent

Winter is finally upon us in this frozen north of Ohio. After the balmy Christmas season, is was hard to weather the 14 degrees we found last night coming home from Andover. I had put the liner in my Columbia jacket, but didn’t grab it on the way out. I will know better this afternoon.

This has been the winter when temperatures were high and prices were low. Prices have been so low that I have sounded just like a farmer, hoping for better tomorrow, thinking the holiday slump was just a normal slow market, betting that the New Year would bring new hope in the corn wars.

Then came Monday, with a new slump to new corn contract lows. The last three trading days of 2015 we put in virtually the same low three times, from 3.57 on the 29th, to 3.58 on the 30th. This looked good on the chart, and it felt like a bottom formation. Alas, Monday opened with a new low at 3.50 1/2, well below the old low. We didn’t bounce off it, either, putting in a 3.51 1/2 close.

While that was happening, March bean futures slumped to 8.53 1/4, and closed at 8.56. That was not a new contract low, but it was close enough to the 8.47 we had on Nov. 23, and slipped below the 8.54 1/4 low we had for the last cycle, on Dec. 17. The chart for beans seems for clear, with three distinct cycles. Yesterday would be the third low, if it holds.

Looking for reasons

Hunting for a culprit for the losses was easy. All the news Monday, Jan. 4, was full of the fact that the Chinese had to close their stock market early because of huge losses. Our market then opened down 300-some points and quickly was more than 400 points lower. We closed much better than that, but the damage was done and the excuses were everywhere, even in the Chicago markets.

I love the idea that we are so susceptible to outside markets that even equity trading in China can affect us. Unfortunately, there is reason to this. Recently we have had soft prices partly because of long-term Chinese problems. They have been selling excessive stocks of corn below long-term prices, and have been telegraphing that they will import less corn next year than last. We are having trouble quantifying this in our prices, but have been defensive about it.

Weak market

One good sign of a weak market is that good news does not help prices. In this case, one piece of bad news hurt prices badly. This is a market that needs good news and is not getting it. It is positive that, here on Tuesday, we are shrugging off some of the losses. Corn futures are up almost three cents, beans are up six.

The modest hope I have carried for this market is that, seasonally, it is normal for prices to firm up after the first of the year following a bad harvest low. There is nothing else on the horizon until the March Planting Intentions Report from USDA.

There is also the axiom that the cure for low prices is low prices. That is because cheap corn tends to be bought up faster than projected. The problem with cheap corn this year is that we have been surprised how cheap it could get — 3.50 corn futures were supposed to be a thing of the past.

The other problem is that, unless we get some fear of higher prices in the markets, users tend to buy hand to mouth, not taking a position as long as the current price is cheap. We need something to break this mentality, and a large break is not the thing.

It is time to move some corn. Movement has already been delayed by prices. The farmers like to be moving grain on good weather days in the winter. They like to see money coming back into the coffers as they jump on the last of the early buying discounts and as the bankers renew operating loans.

Now is the time we need some encouragement in the form of prices to get that movement started.