I watch price trends the first two weeks of April to see if futures will spike up to an important high or fall to a potential low. We often see extreme moves in early April after the release of USDA’s “Prospective plantings” and “Grain Stocks” reports at the end of March.
In both April 2020 and 2021, corn and soybean prices moved higher. All the grain markets moved sharply higher in 2022 after Russia invaded Ukraine in late February. The timing of the highs and harvest lows in the soybean market has been very consistent the past two years. Meanwhile, the corn market had an unusual price pattern in 2022.
Corn futures put in a major low in September 2021, rallied to a high in April 2022, then moved sharply down to a low in July. This was unusual, as was the counter-trend rally in corn futures, which rose to the high in October 2022. After that, prices fell to the low in December. Over the past several months, corn futures have been in a well-defined sideways trading channel.
For soybeans, an important low in November 2021 was followed by a high in early June 2022. The high in 2022 was three weeks later than the seasonal high in 2021. The low in 2022 came in three weeks earlier than the low in 2021. In both years, farmers who sold cash soybeans and hedged new crop in May and June were happy with the results.
Three Important Factors to Watch in April
- Bull spreads. Watch the futures alignment of both the corn and soybean futures, and what the spread does during early April. For corn, the May futures have been gain-ing on the July futures (in the grain industry we call that “bull spreading”). As of this writing, May corn futures are trading 10¢ over the July corn futures. In the soybean market, the bull spreads are also working. May soybean futures are trading 8¢ over the July futures. Again, watch the trend in early April. If the bull spreads kick into high gear, then it’s a positive sign for prices to move higher into May. If the bull spreads collapse, then it is a sell signal.
- Weather and early planting progress. An early spring with rapid planting progress usually has two impacts: more total plant-ed crop acres and more corn acres. At the Agricultural Outlook Forum in February, USDA projected 228 million planted acres (between corn, soybeans, and wheat). This would be up 6 million acres from 2022. An early spring results in more total crop acres and usually more acres of corn. The opposite is also true. A late spring with major planting delays takes total planted acres lower and will usually result in fewer corn acres than projected. Last year, the late spring resulted in more than 2 million fewer acres in corn and 4 million more prevented planting acres.
- Energy prices. Corn exports are way below last year. At this time, Brazil is filling most of the global export demand at a sharp discount to U.S. corn prices. That makes the ethanol market more important than ever. Recent Energy Information Agency (EIA) reports show slowing gasoline demand. If energy prices move lower, then it will impact ethanol and corn prices. I have also noted a correlation in the past year be-tween crude oil and soybean oil prices. Last year, surging energy prices were positive for the corn and soybean markets. I hope it will be again in 2023.
Add it all up, and what should you do in April? We have recommended that farmers have 60% to 80% of the cash 2022 crop sold and 10% to 20% of the new crop hedged. The plan I have for 2023 is similar to the 2022 plan.
If futures spike up in late April, then I will make more cash and new-crop sales. If prices move lower into late April, then I will wait and make more sales in May and June. By early July, I recommend that you have all the cash grains sold.
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.