Spreads offer opportunity for one-way grain market

August 26, 2014 04:04 PM

Storage continues to be an issue as we await the burdensome new corn and soybean crop. When will the American farmer be forced to sell at these cheap prices? When facing the costs of storage and the fact that ground hoarding may not be solvent as the bear market intensifies, the solutrion may lie in spreads. But how do we know which crop they will choose to store and which crop makes more sense to sell.

Spreads are the answer to our question and should create a straightforward solution for the producer. The farm is currently undersold in both corn(CBOT:ZCZ4) and beans(CBOT:ZSX4) but it is our opinion that they’ve sold more beans in comparison up to this point. Bean spreads are flat a year out while corn spreads are trading at a decent carry. From this we can deduce that the market is telling them to sell beans and store corn.

The overwhelmingly bearish picture in these two markets is not a hot off the press story, we’ve known about these record crops for some time. The majority of the marketplace remains fixed on a ‘this big crop just keeps getting bigger’ mentality and into the end of the month, we cannot argue that weather conditions were near-perfect for most of August. While the Pro Farmer Crop Tour resulted in many furrowing their brows, yields are only expected to grow from here and their estimates may have been conservative.

In fact, we believe that these markets will go low enough to where the carry in corn shrinks, leading to the spreads flattening out while bean prices may go low enough that an inversion will occur after harvest.



About the Author

Alyssa started her career in 2008 at the Chicago Board of Trade managing a firm that had a primary focus in grains. The nucleus of her position centered around order entry and research development; from there, Alyssa's enthusiasm for commodities continued to grow and expand. This enthusiasm lead her to move to West Texas and assist in hedging for the largest originator of U.S. cotton to textile mills worldwide.