Spreads, an indication of where we have been, or where the market is going?
Why not both?
If you have followed my postings you are aware of my fascination with the September /December corn spread which widened to full carry. I believed we would hold full carry simply because commercial grain firms would take advantage of the “earned storage”. This did prove to be the case, although with no deliveries against the September contract so far, the spread has only narrowed to 9 cents discount from 14 as of this posting. The contract expires September 14th. Recent private forecaster estimates for this current crop are well under the last USDA August estimate of 153 bushels per acre. The Pro Farmer crop tour estimate came in with an average estimate of 147.9 bushels per acre, down significantly from the USDA figure. Are we focusing too much on our own yield estimates and not enough on demand? The Ukraine is poised to overtake Brazil as the third-largest corn exporter after the U.S. and Argentina. After last years’ short crop, 9.25 million metric tons of grain will be exported this season. The Ukraine corn crop will come in at 16.8 million tons this season due to additional planting and favorable weather, according to recent estimates. An additional factor to be considered might be the condition of early harvested corn in the U.S. The extreme heat in July brought many fields into early maturation, in other words the corn simply stopped growing. One would question not only the yield, but also quality. Are these factors responsible for current status of this spread? Could they also account for the December11/May of 12 at 20 cents December discount. We will be conservative and mark full carry at 30 cents, it is probably closer to 35 cents. My point here is simply that there are two sides to consider when analyzing a market. We all get carried away with the current situation of lower supply which will surely be the case, but are we considering the demand side and the substitution that high priced corn leads to. My sources recently stated that cattlemen in Idaho could purchase corn at $8.60 a bushel and wheat at $6.20. , not a hard decision to make there, is it. Is there a spread here? Not just yet. Contrary to most popular opinion, I caution traders from buying corn, expecting a move above $8.00, the spreads currently don’t support the move.
Questions? Ask Monika Riley today at 312-264-4352
Free – subscribe to receive Weekly Newsletters via Email
