Markets unPACKed: Harvest and Analogue Years
Harvest and Analogue Years
Heading into row crop harvest this year in the U.S., we are looking at a continuation of the violently unchanged markets we’ve been seeing for the last few months.
Save for some action on USDA report days, new crop futures have traded in a very tight (relatively speaking) range since early May. Below, one-year charts for CZ1 and SX1 futures, respectively, we’ve seen CZ trade around 550 for three months, and soybeans bounce between $13 and $14 during that time.
Figure 1 (courtesy of Barchart).
Our head trader and I had a discussion on Friday about new crop price action. A theory that we had entertained for much of the end of last year, and the beginning of this year, was that price action was like 2011 for corn and soybeans. This theory served us well with the harvest run-up in prices, and as we re-examined the theory, some interesting parallels became apparent. Below, CZ11 and SX11 charts, with grey marks at the contract highs:
Figure 2 (courtesy of Barchart).
Figure 3 (courtesy of Barchart).
As you can see, after the market reached its peak on August 31, harvest pressure pummeled these markets; the weather premium and the demand market that had built up earlier in the year left quickly.
Market action leading up to August 30 in these markets was eerily similar to current market action, as well, in both 2011, and in 2021 for corn. We saw a consolidating trade leading up to the August 31 high watermark; in soybeans, we saw four months of soybeans bouncing between $13 and $14 a bushel.
What else does 2011 have in common with 2021?
- Demand market in the prior year (2010 and 2020, respectively), teed off by Chinese buying
- Tight carryout situations
- Larger-than-average crop sizes, due to the above
I’ll finish by adding a caveat here: It’s hard to “drink from the same river twice” in commodities markets, in my opinion; However, I won’t go as far as to say the sky is going to fall starting tomorrow with regard to new crop corn and beans.
The idea is that harvest pressure is going to wipe out a lot of the demand market and weather premium we’ve built over the last 10 months in Dec. Corn and Nov. Beans, and that’s not a difficult thing to imagine.
We’re keeping our eyes on this idea for both our funds and our commercial program.
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