At a meeting in Iowa earlier this year, the questions started as soon as I walked in the door: “Hey, Al! Do you expect the old John Deere low again this year?” In the 1970s and ’80s, I often waited to buy soybeans until the first half of March. That was when many farmers needed to make their “John Deere payments.” Many farmers also had to pay cash rent on March 1, and in some states, March 1 is when farm real estate taxes are due. I used to have my livestock farmers buy corn and soybean meal in the first week of March and first week of October each year.
In this monthly CBOT corn continuation chart going back to 2010, you can see the prices in March and October (indicated by the arrows) have not always been the lows, but it has usually not been a good time to sell. However, it often has been a great time to buy corn if you are a livestock feeder or ethanol shareholder.
When you add up all the cash sales, a lot of corn and soybeans were forced on the market in a short time. The selling pressure it created often resulted in a significant low. However, in the past decade, farmers have become more disciplined in making sales. Furthermore, in March the focus is on weather in South America. I still view early March as a key change-of-trend time window, when I project a possible high or low in the grain markets. As with last year, this January and into early March, weather and weather forecasts were the main factor driving corn and soybean prices higher in the first quarter of 2023.
In this monthly CBOT soybean meal continuation chart going back to 2010, I highlight the prices in March and October. March has often (but not always) been a good time to buy soybean meal. In the past two years, buying in March (and in October) has proven to be the right strategy for livestock feeders.
Here are four factors you should be watching this March.
1. Alignment of the corn and soy-bean futures. In the 1980s when prices were pounded down to the March lows, the May and July futures offered a large carrying charge to the March contact. This made it easy to identify a low. In the past few years, however, the March contract has often traded at a higher price than the May and July contracts. In other words, the market is inverted. This can signal a change-of-trend top in the cash market.
2. Cash basis levels. This year, basis levels have been very strong, indicating elevators and processors want your corn and soybeans now, and they are willing to pay a premium for March delivery over delivery in 30 or 60 days. If you are willing to use options, then one strategy to consider is to sell the cash corn and soybeans and transfer the risk to July call options. This can also save a lot of interest at the bank. It effectively creates a minimum price contract.
3. Trade expectations and the market reaction to the March 31 USDA “Prospective Plantings” report. My early thoughts are that we are likely to see 1 million to 2 million acres more corn, and soybean acres that are about the same as last year. I expect fewer acres of cot-ton and spring wheat in 2023. If the rally in corn and soybeans continues into early April, then it is a positive signal for higher prices into May and June. If prices get hit in early April, then the high may already be in. This would be unusual but not unprecedented.
4. Weather trends in the southern and eastern Corn Belt. With La Niña fading and El Niño forecast for this summer, I am more concerned about planting delays in the spring than about another drought year. Delayed planting across the central Corn Belt could create the weather-scare rally you should use to make more corn and soybean sales. Now back to my question from the Iowa farmer: Do I expect a low in corn and soybean markets in March? I think there is more likely to be a low, or at least a pause, in the corn and soybean markets before we move to the ultimate high in May and June. At this time, we have recommended having 70% to 80% of the cash corn and soybeans sold, and 10% to 30% of the new crop hedged, so I am not risking the entire crop on higher prices this spring.
Get the inside scoop before the USDA March 31 “Prospective Plantings” report. We are again working with Successful Farming to survey farmers across the Corn Belt on their 2023 planting intentions. To participate, you must be a Kluis customer or have a trial subscription to the Kluis Market Pack during the month of March. To sign up for that free 30-day subscription, go to kluiscommodities.com.
Note: The risk of loss in trading futures and/or options is substantial, and each investor and/or trader must consider whether this is a suitable investment. Past performance — whether actual or indicated by simulated historical tests of strategies — is not indicative of future results. Trading advice reflects good-faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice given will result in profitable trades.
