Groundhog Day- Planting Season is Coming Soon

Groundhog Day- Planting Season is Coming Soon
Getty Images

On Friday, February 2 it was Groundhog Day. Each year, in Punxsutawney, Pennsylvania at Gobbler's Knob a groundhog names Phil wakes from hibernation. If he sees his shadow, there will be six more weeks of winter. If he doesn't, warmer weather is just around the corner and we can expect an early start to spring. Well, Punxsutawney Phil saw his shadow this year, which tells us that the odds favor an extended winter season. For me, Groundhog Day means that the futures markets will start to focus on the 2018 crop year and farmers are now making plans for which crop to plant in the fertile soils across the United States. 

Even if there are five or six more weeks of winter, agricultural producers are busy watching prices to decide on their plans for this coming crop year. After five straight years of bumper crops in the United States and around the world, prices are not that exciting for farmers. However, growing global demand for food has led to higher lows in corn and soybean prices for the past two decades. The U.S. is the world's leading producer of both the grain and oilseed. The last time there was a problem with the crops was back in 2012 when drought conditions took their prices to all-time highs as corn traded at over $8.40 per bushel, and the beans found a high at just shy of $18 per bushel. 

We head into the 2018 crop year with corn at just over the $3.65 level and beans around $10. Many farmers have a choice as to which agricultural commodity to plant on their acreage and are now watching the new-crop prices for corn and beans. The new-crop prices are the levels that farmers can lock in today when it comes to hedging futures production from their land. Over the past, more than four decades, the average for the price relationship for corn and beans has been around 2.4 bushels of corn value in each bushel of soybean value. When the level is higher, soybeans are the more valuable crop, and when it is lower, farmers tend to favor corn. 

Source: CQG

As the chart of new-crop November soybeans divided by new-crop December corn highlights, the ratio stood at 2.55:1, or 2.55 bushels of corn value in each bushel of soybean value as of February 12, ten days after the groundhog saw his shadow. If the ratio remains above the 2.4:1 level, farmers will likely plant for beans than corn this crop year. Farmers are businesspeople, and they tend to make wise economic decisions when it comes to utilizing their acreage. However, there will be lots of volatility in the corn and soybean market in the weeks ahead as the uncertainty of weather through the planting, growing and harvest season tends to reach a peak when the seeds go into the ground and the growing season gets underway in the weeks and months ahead. Trading in these markets during this time of the year tends to be most active during coming weeks as price volatility often peaks. 

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.