Kluis: Corn prices have (probably) peaked for the year
Written by Jonathan Eisenthal
The recent $1.70 drop in corn futures was sobering for some and induced panic for others. Al Kluis fielded lots of calls to allay fears and give perspective, he said in his latest quarterly marketing webinar for Minnesota Corn Growers Association (MCGA), held July 7. MCGA offers the webinars as a free service to members as part of its mission of ensuring that corn growers have all the tools they need to be successful.
Though there may be rallies, in Kluis’ opinion, the corn market has passed its high price for the year.
Kluis, a Series 3 commodity broker, is Marketing Advisor and Managing Director of Kluis Commodity Advisors in Wayzata. He has been in the grain trade nearly 50 years, and he admits he was taken by surprise by the force of the downward movement, but he also pointed out the logic of what had taken place.
Following the June 30 USDA grain stocks report, it became clear to all buyers in the market that there was more than enough grain — not nearly the scarcity to support the high prices the market hit in May.
Kluis examined the weekly price report for the audience: “Going back to 2020, again, you see the COVID low, you see the August low, you see the huge run up (of prices) into May 2021, the correction down to the harvest low in September, and again the run up to the high, in the second week of May (2022). The highs came in the corn market, almost a year and a week apart, and since that time, we have been correcting lower.”
A rule of thumb Kluis has shared with customers for many years can help you avoid getting caught in the typical steep summer decline in prices.
“One of the old rules that I have always used in the corn market is that when you are planting corn, you should be selling corn, and in both 2021 and 2022, boy, that was a rule that really worked,” Kluis said.
In addition to analysis, Kluis always includes an educational segment in his quarterly webinar. This time, he outlined how farmers can make money by approaching markets like grain elevators do: buy when the basis — the spread between the cash price and futures price — is widest, sell when the basis is the narrowest and use futures and options to manage risk. A key to being able to act like an elevator is on-farm storage.
Bins are getting more expensive, Kluis admits, but still, he advises that drain tile systems and grain storage are investments that pay a good return, especially in view of his opinion that corn in Minnesota is a “growth industry.”
He gave a four-year snapshot of the industry, showing how Minnesota corn production garnered $4.26 billion in revenue to farmers in 2019, $6.05 billion in 2020 and $7.6 billion in 2021. Based on the average price and other factors, the USDA estimates Minnesota’s corn crop could be worth $9.4 billion in 2022.
“I’m pretty confident that when we come back here next year and do this meeting for Corn Growers, we are going to see Minnesota revenue from corn clicking in above $9 billion,” Kluis said. “This is something that the leadership and the people who work in the corn industry should be very proud of.”
