The Trend Is Your Friend… 'Til It Isn't

BEN BROWN

COLUMBIA, MISSOURI

American investor and financial analysis Martin Zweig is credited with coining the phrase "The trend is your friend, 'til it isn't". Overtime he made a lot of money by investing in trends. The phrase is commonly applied in agricultural economics, where pricing markets, producer sentiment and drought tend to follow trends, whether explicitly stated or implied. Just last month, a well-respected meteorologist remarked, "drought begets drought" and "drought never breaks easily". While he never said "trend", he certainly implied that dry conditions persist until evidence proves otherwise. The same principle holds for agricultural markets. When traders are bullish, markets move higher until enough evidence exists to change the narrative, which is why market analysts closely monitor 50-day moving averages. If a price series breaks above or below these moving averages, it often signals a trend change, prompting traders to adjust their position in the market.

For nearly a decade, market analysts routinely underestimated Chinese soybean import demand while overestimating its corn import demand. Just as the market began doubting China's interest in importing corn, the country purchased nearly 1,162 million bushels from the international market in the 2020/21 marketing year—four times its previous record—and prices moved sharply higher.

Yield estimates follow the trend concept, both for U.S. and global production. At winter producer meetings, a common refrain was "USDA new crop ending stocks estimates for 2025/26 are the highest we'll see, so why should I sell anything now?" Recent data certainly validates this skepticism. Between 2010 and 2024, corn endings stocks were higher during the initial data release than the final estimate 11 times, or 73% of the time—the last time ending stocks were higher at the end than the initial release was during the 2019/20 marketing year. Soybean stocks were higher during the initial release 10 times, or 67% of the time. If the trend is supposed to represent equal probabilities of below and above outcomes, which is not true, then a gambler would say these are good odds.

To be fair, USDA's ending stocks estimates are the difference in supply and demand, which include many moving parts like imports, beginning stocks, exports, domestic use, as well as harvested acres and yield (both of which are far from set in February). Acreage projections from USDA's February outlook are replaced by March's Prospective Plantingssurvey until more is known about planted acreage. At the time of publication, USDA reported 2025 planted acreage at 47.0, 94.0 and 84.0 million acres of U.S. wheat, corn and soybeans, respectively. However, it is unlikely that the producer planting intentions survey showed the same values. The same is not true of yields.

The initial trend yield USDA reports in February draws significant market attention, as it remains the same until late summer or early fall. For 2025, USDA estimates U.S. corn yield at 181.0 bushels per acre and soybeans at 52.5 bushels per acre, based on historical weather-adjusted trends of expected planted acreage and assuming normal planting progress and summer growing season weather. But recent history has raised questions, as U.S. corn yield has fallen below trend estimates seven years in a row. Has a new trend emerged? The pattern draws the ire of corn producers, as an artificially elevated yield suppresses corn prices. And this isn't solely a U.S. issue, as global grain and oilseed yields exceed trends for seven straight years (2013-2019), a period of relatively low commodity prices. More recently, yields have fallen below trend for five consecutive years, sparking concerns that artificially elevated projections continue to depress prices. Figure 1 illustrates historical global grain and oilseed yields and a 20-year trend value.

 Has the trend changed? One's answer to this question likely shapes their expectations for ending stocks values and price movement. As always, the trend is your friend, of course… until it isn't.   ∆

BEN BROWN: University of Missouri