How Election Years Impact the Grain Markets

One pattern I watch for to determine when a market is peaking is day-to-day and week-to-week extreme market volatility. Think back to 2012 and 2022 when corn prices routinely had a daily 20¢ trading range and soybeans would chop up and down in a 50¢ daily trading range. That type of volatility is a caution sign that the bull run is coming to an end. Watch your charts and put your GTC (good till canceled) offers in above the market, and get the crop sold!  

The past few months have seen the opposite pattern; the grain markets have been flat with minimal daily trading ranges. For corn, the daily trading range is just 4¢ to 6¢, and the weekly trading ranges have been down to 12¢ to 14¢. For soybeans, the daily range is just 8¢ to 12¢ and the weekly range is 28¢ to 34¢. It’s been boring, but I think that is about to change.

Two factors to watch this year

1. During February, the key factor will be the size of the South American corn and soybean crops. Make it five years in a row that the very early, very optimistic crop projections for Brazil turned out to be wrong. The size of the Brazilian corn and soybean crops are determined in February (think of it as August in the U.S. crop year). At the time of this writing, it is too early to have an accurate gauge of the final crop size, but it looks like the total South American corn production may be 500 million bushels less than last year, and the total soybean production from the five major countries will be 100 million bushels less. If the crop gets smaller, look for prices to move higher. 
2. Note early weather forecasts for the United States. I watch weather and planting conditions in the Delta in February and early March for a hint of what can develop in the central Corn Belt in April and May. If we have an early spring, you almost always get more corn and more total planted crop acres. If the spring weather across the Corn Belt is late with wet conditions, you will usually get less corn and more prevent plant acres.

Election year patterns

The seasonal odds patterns are different in even-number years and tend to move to extremes in presidential election years. This year, if corn prices turn lower in February, look for that trend to continue into March; in many years, the down trend can continue until the end of April or the first part of May. My old rule of selling corn when you are planting corn may not work as well in 2024 as it did in 2023. 

If soybean futures are trending lower during February, look for that downtrend to continue into at least March and possibly early May. I usually recommend a lot of early sales for new-crop soybeans; this year I will hold off until later in the year and use a combination of new-crop hedges and puts. 

A farmer friend at a recent winter seminar commented, “I like your charts, but I also would like some insight into what are the key fundamentals that I should be watching?”

Don’t hold cash crops too long

I build separate marketing plans for the cash 2023 corn and soybean crop, and a different, more flexible plan for 2024 new-crop corn and soybeans. 

For the 2023 crop, I had 40% of the corn hedged at $5.99 with the December 2023 corn futures contract, and 40% of the 2023 soybeans hedged at $14.02 with the January 2024 soybean futures contract. 

Now, what to do with the rest of the cash inventory? I plan to use any rally into the April-to-June time period to make a series of 10% sales to get the last 60% of the crop sold. With high interest rates and a lot of global uncertainty, I am reluctant to hold the 2023 crop into late 2024, even though I think we can get the usual election year rally later in 2024. I plan to take advantage of that rally to get the 2024 crop sold, and possibly some 2025 crop hedged ahead.

For corn, if you have any bank debt and you are in an area with a good cash basis, sell the cash corn and buy back July and September corn calls. Is this speculation? Yes, but it is less risky than sitting (speculating in the cash market) with cash corn and hoping the market goes up enough to pay your interest at the bank. If you do not know how to do this, learn how or have someone on your team who knows how to use these risk management tools help you. 

My price target for July 2024 corn futures is at $5.60 to $6.00 per bushel. I think corn prices can hit that price target, but I doubt it will stay at that price level for the rest of the marketing year. 

For soybeans, the interest bill adds up really fast every month you are sitting on cash soybeans. For many farmers, it is 8¢ to 9¢ per bushel per month. It is even more if you have the soybeans at the elevator. My solution again is to sell the soybeans and replace them with July or August call options. If you are going to speculate, this is less risk than holding cash beans in the bin. The money you save on interest will pay for the call options.

Article courtesy of Successful Farming, Al Kluis