As the calendar turns into fall, the corn and soybean markets will brace for new production to come online. You will begin to hear many analysts talk about “harvest pressure” as the combines begin to roll across the heartland. Being a grain nerd and someone who reads a lot of different opinions, I was interested to see how real this pressure is. Does harvest pressure exist? Or is it something analysts assume because they see product being sold at this time of the year?
Below are combined, daily harvest charts for corn and beans, tracking the price action between August 1 and the expiration for December Corn and November Beans, going back to 2005. I threw out 2008 because the financial crisis that year was an anomaly, in my opinion. I replaced it with 1996, because a lot of older traders tell me that 1996 reminds them of this year. In 1996, we were coming off a tough growing year in 1995 and saw a significant drawdown in supplies. Like 2013, 1996 had a wet spring that caused late plantings. Frost was a significant concern as well.
- Right away, I notice the high prices for 2012 and 2011 corn, and how the harvest took away much of the risk premium put into the markets over the summer. 2012 saw a 10% sell off during Q4, while 2011 saw 25% price depreciation.
- 2010 had a myriad of flooding problems. The USDA had a difficult time pinning down harvested acres that year.
- 2005, 2006, and 2007 saw above trend line yields for corn. In 2007, we saw prices appreciate 20% during Q4. In 2006, the corn prices rallied from 2.50 to a high of 3.75 in December. That’s an appreciation of almost 50% during harvest! 2005 saw a selloff of 20%, which was the result of a supply carryover from 2004 (+160 yield, a record at the time); plus China was not a big buyer yet.
- 2009 was a fantastic corn growing year (US yield above 163, the current record) and we saw price appreciation during the fall to the tune of 20%. Keep in mind that ‘09 had significant tailwinds due to global QE and Chinese stimulus.
- 1996 saw a selloff into the end of the year. The crop was below trend (130 bu an acre). The late plantings brought about premature risk premium into the market, which was taken out on harvest. 2013 was very similar to 1996. Both had tough years in the prior summer, followed by late plantings.
Conclusion: There is no correlation I can see between harvest and a selloff in price. The years when the selloffs happened, there was a substantial run up in price over the summer due to inclement weather and fear of yield loss (like this year?). I think demand has much more to do with price in Q4 than it does in the time before harvest. I believe producers need to be aware of the 1996 price action, but should feel good that prices are somewhat depressed going into the harvest. Autumn corn performance seems to be better in years when prices are down and/or flat going into the harvest.
- Soybeans had similar price action to corn. When we saw risk premium put into the markets over the summer, the prices went down into harvest.
- 2013 Soybeans seem to be tracking the 2011 and 2012 price action. We saw significant summer run-ups in each year. The certainty that comes with harvest and the removal of said risk premium seems to be a theme. Much like this year, 2012 and 2013 saw massive participation on the long side by spec money. 2011 and 2012 saw depreciations of almost 20% in each year. If 2013 would see the same type of downward price action, Nov beans could be headed toward 11.20.
- 2010 soybeans rallied substantially into delivery, as harvested acres slashed during the end of Sep grain stocks/production report. Most of the appreciation that year came after Oct 1. Also, South America also had planting problems that year
- 2009 and 2008 saw slight depreciation into harvest on the back of the above trend line, record yields (43 in 05, 44 in 09).
- 2006 was another great year for yields because beans sold off slightly into the Sep stocks report and rallied almost 20% into the end of the year.
- 1996 saw relatively slow price action, but did see depreciation of 12% from October on
Conclusion: The bean correlations are more difficult to distinguish. Like corn, when the market priced in low summer production, the market actually sold off into the end of the year (2011, 2012). We need to keep in mind that the report at the end of September also has significant impact on where prices end up. An adjustment of harvested acres will have an effect on the trajectory of prices into the end of the year. That said, the last few months of September appear to set the trend for what will happen to price as harvest wraps up near Thanksgiving.
So back to our question, “Does harvest pressure exist?”
I would say it is very inconclusive based off the last 10 years of price action. One thing I can see is that risk premium due to uncertainty is taken out of price at harvest. I believe one reason why this is more prevalent now than in the mid 2000’s is the increased participation by speculators. There is more managed money in these markets now than at any time in the past. These funds have no interest in taking delivery of the product. In order to exit long positions, they must sell them back to the market. This, combined with actual sales of production, may be a reason why we saw the big sell-offs into harvest over recent years. We also need to remember that in the near future, Brazil is planning to begin production on 3+ billion bushels of soybeans. There are certainly a lot of factors that determine price right now, but I lean more toward the downside in the short term in beans and upside in corn, due to how the managed money is playing this (long beans, short corn).
This year will be fun to watch, I hope you will all join me on the newsletter as I follow along. Happy harvest!
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