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Todd's Take
Monday, November 19, 2018 7:35AM CST
By Todd Hultman
DTN Lead Analyst

It was just over a week ago that USDA surprised markets with a 5.9 billion bushel (bb) increase in its estimate of China's corn stocks, and I am glad to say the impact on December corn prices has been minimal, down only about 4 cents or 5 cents from the close of the day before the report. In fact, trading in corn has been so dull lately it is sometimes difficult to tell when the market is open.

Slow trading in corn isn't unusual this time of year as traders get more settled with USDA's 14.63-bb harvest estimate, and the excitement and uncertainty of the growing season fades from view. What is unusual for corn prices is how depressed and sideways they have stayed for four consecutive years. Going back to 1970, there is only one other time that prices behaved this way, and that was the four-year period from 1998 to 2001 -- one of the most bearish stretches in corn price history.

Just as the current slump in corn prices was brought on by a combination of consecutive years of good weather and a slow world economy, the bearish era of 1998-2001 was triggered by a financial panic in Asia, which came along at the same time the U.S. had a string of four consecutive above-trend crop yields. With demand for U.S. corn depressed, U.S. ending corn stocks peaked just shy of 20% of annual use in 2000-01, a little more than the 16% of annual use at which corn-ending stocks peaked in 2016-17.

The parallels don't stop there. The trading of corn from late 1998 to 2001 shows confined price volatility while in their sideways pattern. Based on the history of prices to their one-year average, corn did not venture outside of one standard deviation until a modest drought developed in July 2002, finally breaking the sideways slump. Looking at the current era, we see prices still trading well within the same boundaries, not finding a reason to break out yet.

The final common thread between these two periods of corn history put the deja in déjà vu. Last Thursday when USDA reported world ending corn stocks increased from 159.35 million to 307.51 million metric tons (mmt) (12.1 bb) and we realized it was not a typo, I knew I had been through this before, but I couldn't recall exactly when.

A little research showed USDA made a similar upward revision in corn stocks due to new data from China in the WASDE report of May 10, 2001, toward the end of corn's earlier doppelganger period. On that day, USDA increased its estimate of 2000-01 world ending corn stocks from 105.84 mmt to 155.30 mmt (6.1 bb) and increased China's ending stocks estimate from 32.03 mmt to 80.46 mmt (3.2 bb), based on a 20-year revision of China's estimates. July corn fell 6 3/4 cents to $1.98 1/4 that day, but the loss was erased a couple months later when prices caught a steep July rally.

When we look at the similarities of today's corn market with the 1998-2001 period, I don't expect history to repeat itself exactly the same way -- life isn't that easy. Somewhat like looking at the stars, it's hard not to have a certain sense of wonder about the synchronicity of these events.

I don't have any solid reason to expect 2019 to be the year when adverse weather or some other unexpected surprise arrives to rescue corn prices from their dull, sideways trek, but it is fair to say that after four years, this market is ripe for change. I look forward to seeing what develops.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman


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