One pattern I look for to determine when a market is peaking is extreme day-to-day and week-to-week market volatility. Consider 2012 and 2022, when corn prices routinely traded in a daily trading range of 20 cents and soybeans fluctuated in a daily trading range of 50 cents. This type of volatility is a warning sign that the bull market is coming to an end. Watch your charts and place your GTC offers (valid until canceled) above the market and sell the crop!
In recent months the opposite pattern has been observed; Grain markets remained stagnant with minimal daily trading ranges. For corn, the daily trading range is only 4¢ to 6¢, and the weekly trading range has fallen to 12¢ to 14¢. For soybeans, the daily range is only 8¢ to 12¢ and the weekly range is 28¢ to 34¢. It was boring, but I think that will change soon.
Two factors to consider this year
- The deciding factor in February will be the size of the South American corn and soybean crops. Make it the fifth time in a row that the very early, very optimistic crop forecasts for Brazil turned out to be wrong. The size of Brazil's corn and soybean crops is determined in February (think of it as August in the US crop year). At the time of writing, it is too early to have an accurate estimate of the final crop size, but it looks like total South American corn production could be 500 million bushels less than last year, and total soybean production five In the large countries it will be 100 million bushels less. As the crop becomes smaller, watch out for rising prices.
- Pay attention to early weather forecasts for the United States. I monitor weather and planting conditions in the Delta in February and early March to get an indication of what may develop in the central Corn Belt in April and May. When we have an early spring you almost always get more corn and more acres planted overall. When spring weather is late across the Corn Belt and wet conditions prevail, you typically get less corn and more acreage harvested.
Election year patterns
Seasonal odds patterns vary in even-numbered years and tend to be extreme in presidential election years. If corn prices fall in February this year, expect that trend to continue into March. In many years the downward trend can last until late April or early May. My old rule of selling corn when you grow corn may not work as well in 2024 as it did in 2023.
If soybean futures are on a downtrend in February, you should expect that downtrend to continue at least through March and possibly early May. I usually recommend lots of early sales for new crop soybeans; This year I will move it to later in the year and use a combination of new crop hedges and puts.
A farmer friend recently commented at a winter seminar, “I like your diagrams, but would I also like some insight into the key fundamentals to keep an eye on?”
Don't hold back your cash crops for too long
I am creating separate marketing plans for the 2023 cash corn and soybean crops and a different, more flexible plan for the 2024 new corn and soybean crop.
For the 2023 crop, I had 40% of the corn hedged using the December 2023 corn futures contract at $5.99 and 40% of the 2023 soybeans hedged using the January 2024 soybean futures contract at $14.02.
Now what to do with the remaining cash? I plan to use each rally in the April to June period to conduct a series of 10 percent sales to sell the final 60 percent of the crop. Given high interest rates and much global uncertainty, I am hesitant to delay the 2023 crop until the end of 2024, although I think we could see the usual election year rally later in 2024, with the 2024 crop sold and possibly some 2025 crop hedged.
If you have banked corn and are in an area with a good cash base, sell the cash corn and buy back July and September corn calls. Is this speculation? Yes, but it's less risky than sitting around with cash corn (speculating in the spot market) and hoping the market rises enough to pay your interest at the bank. If you don't know how to do this, learn it or get help from someone on your team who knows how to use these risk management tools.
This chart of seasonal corn price trends, which only includes the presidential election years from 2008 to 2020, shows that corn prices often trend sideways and decline in May before rising in late summer. Historically, the longer you have to wait for the rally, the better the reward.
My price target for July 2024 corn futures is $5.60 to $6.00 per bushel. I think that corn prices can reach this price target, but I doubt that they will remain at this price level for the rest of the marketing year.
With soybeans, the interest bills add up very quickly every month when you're sitting on cash soybeans. For many farmers, it's 8¢ to 9¢ per bushel per month. It's even more so when you have the soybeans on the elevator. Again, my solution is to sell the soybeans and replace them with July or August call options. If you're speculating, it's a lower risk than keeping money beans in the bin. You can use the money you save in interest to pay for the call options.
This chart of seasonal soybean price history, which only includes the presidential election years from 2008 to 2020, shows that prices typically rise in April, fall again in May, and then rise, with likely peaks in either June or August. It's not worth the risk to hold cash soybeans into August, so plan to use the June rally to sell cash. When pricing new crop 2024 soybeans, use a combination of hedging and put strategies.
Note: I will explain these strategies with specific strike price recommendations when I speak on the Successful Farming main stage at the Commodity Classic conference later this month. If you can't make it, check out a free webinar on my website in early March.
Note: The risk of loss when trading futures and/or options is significant and each investor and/or trader must consider whether this is an appropriate investment. Past performance, whether actual or indicated by simulated historical testing of strategies, is not indicative of future results. Trading recommendations reflect good faith judgment at any given time and are subject to change without notice. There is no guarantee that the advice given will result in profitable transactions.
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