Corn futures are kicking off September and the new marketing year with a bang, picking up where they left off after a historically strong — and counterseasonal — August rally. The question is whether bulls can find the fuel needed to keep the rally alive ahead of a looming harvest.
Corn for now continues to disregard technicals and overbought conditions as the market goes through a repricing phase, adjusting to production prospects that remain well below what was expected earlier this summer. December corn saw its largest percentage August gain since we started keeping track in 1980 as futures surged 15.9%. On a nominal basis, December corn climbed 73 3/4 cents, the second largest August gain since 1980, behind 2011, when prices gained 98 3/4 cents. August typically favors the bears, with prices falling 52% of the time since 1980 prior to this year, though the average percent change of all years since 1980 is flat, an indication gains tend to outweigh losses.
What happens in years with big gains in August, typically a bearish month? To get an idea, we took a look at other years that saw August gains of more than 8%. That has only happened six times since 1980, in 1983, 2003, 2010, 2011, 2020 and 2022. Each of those years saw production concerns that became more well known in the month of August, similar to this year. Contra-seasonal price action in the growing season needs a catalyst, these years it all was on the supply side of the balance sheet.
This year fits the bill. USDA on Aug. 12 delivered a Crop Production report that pegged the average corn yield at 180.7 bushels per acre, well below market expectations that had looked for a figure just below the trendline average of 183 bushels. The Pro Farmer Crop Tour, held the following week, found a crop that had been buffeted by extreme weather swings across much of the Corn Belt. We pegged the average yield at 173.2 bushels per acre. Other crop tours also found sub-par crop prospects and a number of analysts have lowered their forecasts.
Production issues and concerns do not go away overnight, but the market can efficiently price in those changes. How prices reacted in September was a mixed bag in those six years. December futures plunged, giving up most of the August gains in 2003 and 2011, falling 8.9% and 22.8%, respectively. Prices were relatively flat in 1983 (falling 1.3%) and 2022 (rising 1.0%). Futures surged higher in 2010 and 2020, rising 12.9% and 5.9%, respectively. Historically, December futures favor the downside in September. Since 1980. prices have closed the month lower 60% of the time. The average change during the month for all 47 years is -1.5%.
Markets have started September off on a high note, hitting fresh contract highs. Bull markets need to be fed regularly. It is key to keep a risk management plan in place and making sales as targets are hit.