With the official start to the 2024 election this week questions on what voters heading to the polls in November may mean for commodities are on the rise.
I cringe a little when it comes to discussing the election or its candidates as I harbor great disdain for both parties and have found answering questions involving politics as they pertain to agriculture or futures markets can be surprisingly polarizing even for someone in the middle.
However, I have seen a handful of columns and comments floating around recently discussing how election years are traditionally bullish for grain prices, prompting me to take a bit of a deep dive into the election years of my career, going back to 2008. I wanted to see what prices did, what kind of marketing opportunities were presented and then look at whether it was the election or something else that was driving price action.
Election Year Market Moves
While I remember some of what happened in 2008 well, I had forgotten to a certain extent the extreme price volatility seen that year. 2008 started with prices around $4.50 for corn and $11.50 on beans, adding a dollar to corn and sending beans to $14 by the time spring crop insurance prices were set at the end of February. The markets did not stop there, trading to nearly $8.00 at the end of June for corn with beans trading over $16. A sharp sell off ensued that July, catching a slight reprieve in August before corn found itself having lost nearly half its value, falling to $4.00 at the time of the election with beans down to $9.50.
2012 is remembered well as the year of the drought across the United States. Prices were already relatively elevated to start the year, trading in a $5.50 to $6.00 range for corn throughout the first half of 2012, dipping into the low fives for a bit after a record fast planting and increased acreage prompted analysts to feel comfortable with production expectations. Prices started to rally in a big way in late June that year, soaring to nearly $8.50 in August, and still trading well above $7 at the time of the election.
Soybeans started 2012 trading in the low twelves, heading to nearly $14 late in the spring that year after elevated corn prices had swiped some bean acres. Like what we saw in corn, prices rallied hard into August that year trading above $17.50 in September before falling off to $15 at the start of November.
2016 was a bit different, though it had some very similar patterns to it as well. The year started with much lower prices than the previous two, with January prices in the upper threes for corn with soybeans trading in the upper eights. Prices rallied that year as well though, with corn gaining 75 cents and beans trading to an $11.60 high before both fell lower into the election. Corn traded down to around $3.50 that fall while beans ended in the upper nines.
Finally, 2020. Oh, 2020, the year the holds some of the most traumatic market moves of my career. We started the year around $4 for corn and $9.50 in beans, before trading a pandemic fueled low that took prices below $3.50 for corn and under $8.50 on beans before coming into the election near contract highs.
Looking at price action alone would say, yes election years do provide pricing opportunities, with the smallest gains seen in 2016 still offering a near 90 cent rally in corn, with beans adding over three dollars that year.
What Drove Those Moves
It’s when you start to look at the fundamentals behind the price action of election years that you find it’s not as simple as an election guaranteeing gains.
In 2008 we were looking at monumental growth in ethanol fueling a boom of nearly 2 billion bushels worth of corn demand gains in two years. That growth in demand combined with production hiccups elsewhere in the world and a spike in inflation that summer, provided a perfect opportunity for an inflow of fund money.
2008 also experienced a very poor start to the growing season, fueling additional worries of major production shortfalls before a near perfect July and August ran headlong into an outside market facing an impending housing crisis. The incredible rise and fall of prices that year was driven by money flow and shifting expectations of what world demand would look like against improving supply as the world fell into a recession.
2012 is the easiest market move to explain in all my career. We started the year with an already tight supply outlook as increased biofuel demand combined with an increase in export demand had eaten into stocks in the previous two years. Corn carryout the year prior was below one billion bushels, with traders hopeful an increase in acreage would help stabilize the outlook and push ending stocks higher at the start of the growing season. The higher corn prices to start the year had cut into bean acres, pushing their ending stock outlook to an historically tight 145 million bushels in the May 2012 WASDE report.
Unprecedented heat and dryness decimated the crop outlook that year, with the national corn yield falling from 166 bushels per acre to start the year, to 123.4 in the end. Soybean yields did not see quite the precipitous drop thanks to rains in August, ending at 39.6 bushels per acre, having started at 43.9. The drop in supply was obviously supportive to prices as we needed to ration demand and encourage supply growth around the world—with the election having little to do with it.
The 2016 election is the one election where we could argue the results had the biggest impact on subsequent market moves due to the trade war, though whether that influenced price action ahead of time is questionable.
We were comfortable with supply coming into 2016, as we were still working to incentivize the return of the demand that had been destroyed by $8 corn and nearly $18 beans in 2012. We started the year with new crop carryout expectations of 2.15 billion bushels for corn, with beans expected to have around 305 million bushels left over.
Heat and dryness marked the start to the year, with visions of 2012 fresh in our heads, prices moved higher. Rain came at the start of July leading to a nearly ideal finish and taking corn yield from a 168 bushel per acre projection to start the year, to a 174.6 bpa finish, with ending stocks over 2.4 billion bushels. Soybeans ended the year with a near record high yield as well, taking carryout to 420 million bushels.
As mentioned, 2020 was one of the craziest years fundamentally to date. We started with depressed prices, a global pandemic and negative oil prices only to finish with unprecedented demand as world end users seemed to decide to cover all their physical shorts at once. In addition to a sharp rise in demand, the USDA found itself adjusting for its errors of 2019, only to have derecho work its way across the Corn Belt that August, destroying millions of acres of grain production in its path.
The realization we had spent much of the year likely grossly overestimating carryout met speculative buying fueled by the inflation trade and tightening balance sheets, resulting in a late year rally unmatched by any year I can remember.
In the end, though all the years listed above were election years that saw rallies, I would be hard pressed to say it was the election that fueled the moves.
What About This Year?
I firmly believe we will see a rally in price from here, with opportunities presenting themselves as we run into potential weather issues, logistical hiccups, or a change in the direction of money flow.
Of course, the implications of this year’s election feel far greater than any year previous with all the changing dynamics we are facing. From a geopolitical standpoint, there seems to be far more at risk that could influence price as well, with trade relations seemingly being rewritten as we start to second guess some of the moves towards globalization seen in years past. Do attitudes from foreign leaders change as who the republican party is going to be put forth grows clearer, or as the winner in November becomes known? Most likely yes.
In the end, while this election is a bit different than the others in that its results could have more direct and immediate impacts, it will still take a backseat to weather, supply and demand dynamics and money flow as we work into the first half of the calendar year and beyond.
As always, don’t hesitate to reach out with any questions. Have a great week!
More Grain News from Barchart
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.