Chicago-traded corn and soybeans ended 2020 with a bang and the fireworks have continued into 2021. The unprecedented rally has many traders and analysts cautiously anticipating where prices will head next, and rewinding the clock by a decade might reveal some possibilities.
CBOT corn futures are not as strong as they were at this point in 2011, though soybeans are close. However, both set 6-1/2-year year highs on Wednesday with most-active corn reaching $5.02-3/4 per bushel and soybeans hitting $13.78-1/4.
Corn futures in 2020 rallied 57% from their April 21 low to the Dec. 31 high, nearly identical in percentage terms to the low-to-high rally in 2012 of 58%. However, corn in 2010 surged 94% from its June 29 low to its high notched on Dec. 31.
Most-active soybeans in 2020 made their low and high on the same day as corn, jumping 61% in those eight months. That is the largest difference from low to high since the 90% swell in 2007, another year where both soy and corn futures marked their highs at the end of December.
2010 is probably the best year with which to compare 2020 corn and soybean price action, meaning that 2011 could be a good place to start when considering 2021 scenarios. From the start of 2020, percentage moves in soybeans almost perfectly followed that of 2010, and the end-of-year rally in corn was very similar to 2010, although the move was much stronger a decade ago.
There are some fundamental parallels between 2010 and 2020, especially with corn. U.S. crop expectations were initially strong in both years but faded through and beyond harvest due to poor growing weather. U.S. corn exports to China somewhat unexpectedly hit a 15-year high in 2010, though the 2020 volume should set a record.
Dissimilar to last year, general grain market strength in 2010 was also largely driven by a massive drought in top wheat exporter Russia, which boosted Chicago wheat futures by 90% throughout July and early August that year.
It is important to understand that the comparisons of 2020 and 2021 with prior years are done in a relative manner and are not intended to suggest that the actual prices will be similar. General patterns and market sentiments are the focus, not specific price targets, though past prices are offered for reference.
2011 FUNDAMENTALS
2011 started on a similar note to 2021 with a focus on tight U.S. supplies and dry weather in Argentina. Final Argentine corn and soybean yields in 2011 were disappointing though far from a disaster, but robust plantings kept overall output high. Brazil harvested strong crops in 2011, including a record soybean crop.
A wet U.S. spring delayed the 2011 corn and soybean planting, though the crops got an OK start based on early crop conditions. But a warm and dry summer clipped the crop potential, and corn yield fell 7% below the U.S. Department of Agriculture’s trend and soy fell 3%.
The 2010 crops had also fallen short of earlier predictions, particularly in the case of corn. USDA had been solidly projecting record domestic 2010-11 corn usage through most of 2011, but the estimates were far too aggressive. That was revealed in an epically bearish June 1 stocks report followed by more price-negative numbers for Sept. 1.
Corn carryout in 2010-11 ended at 1.13 billion bushels, well above the lowest peg of 675 million from early 2011. The export number had been too high, but feed and residual use was the biggest offender.
Soybean use for 2010-11 was also overestimated, and ending stocks landed at 215 million bushels instead of the 140 million predicted earlier in 2011.
It is also interesting to note that USDA overestimated U.S. corn use for most of the 2011-12 year following the short 2011 crop. Soybean use predictions were much better that year, though.
USDA predicts record U.S. corn and soybean use for 2020-21 despite the short 2020 crops, so this might be one area to consider when making the 2011 comparison. But the value of the 2011 analog might start to diminish if the U.S. planting season starts strong.
2011 PRICES
Most-active corn futures opened 2011 around $6.26 per bushel and generally worked their way higher through the first two months, passing the $7 mark on Feb. 9. Soybeans started off at $13.96 per bushel and drifted higher through early February, reaching a top of $14.56 on Feb. 9.
Soybeans then oscillated in the $13 to low $14 range through August, when they made their annual high of $14.65 on Aug. 31 before moving sharply lower to end the year. The most-active contract briefly fell below $11 in December before ending the year just over $12, nearly 14% below where 2011 began.
Corn eventually rose to its June 10 high of $7.99-3/4 per bushel before plunging $2 by early July on outside markets, improving U.S. weather and bearish USDA data. Corn moved into the upper $7 range again by late August before falling back down into the low to mid-$6 range, ending the year up 3%.
DECEMBER HIGHS
Since 1980, December has been the second-most common month after June for corn and soybeans to set their annual tops, though December ties with July for corn. History suggests that the following year’s high is not usually set right away.
In the 40 years prior to 2020, most-active corn and soybean futures made their annual highs in December five times each. In only one of those instances, 1993-94 for corn, was the next year’s high made within the first two months of the year.
Of those 10 total years, the most common months for the following year’s high were June with three cases and December with two.
Chicago wheat futures made their annual high in December seven times between 1980 and 2019, and in three of those cases the next year’s high was set in the first two months of the year. April and December were the other two follow-up months with two instances apiece.
Source: Reuters (Editing by Matthew Lewis)
