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Ridgway, IL | I hear corn is being held in tight hands in northern Illinois, where the delivery locations are. Basis values are at delivery value equivalent as the h/k spread would indicate. So I guess we can't expect deliveries to push spreads back out right away. So I believe that the spread is telling us something, that despite high stocks to use, movement is slow at these flat prices.
As a side note, I believe we are just not going to see the wide carries that you might expect normally out of these spreads going forward for several reasons, negative interest rates, slower farmer movement, outright lower volatility. Even with a normal growing season and growing carry out, I think we should revise our expectations of how wide spreads will trade downward.
What makes the farmer transfer ownership? With the decline in equity and operating capital that producers have experienced the past year (i know this doesn't apply to every individual, but it does to producers in general) we know that producers will need to meter out sales to satisfy cash flow needs...grain just can't be held as tight as it was the past couple years because the farmer isn't as flush. To me it's just a matter of does that daily selling of grain meet, not meet, or exceed daily demand. That seems so obvious, but that's the situation of this market.
With spreads firming not encouraging all that much movement, plus the dollar seeming to have made a reversal today, combined with maybe a little seasonal tendency for a spring rally... I think one could make the case that we could see a 20-30c move. Short lived in my opinion, because we are not really going to be changing the balance sheet. We're still hedged up on 15 and 16 crop, plus some beyond.... This week we looked for a dip in prices to buy July calls to take advantage of any pop, but never really got it... I feel like the risk reward is favorable to own those 390 or 4 calls even at current prices... So should prob just pull the trigger. For sure if we see flat prices go up 10-20c, I would expect the old crop spreads to relax considerably.
Long term, it would take a long series of events for me to think dec futures should stay above 4$ for very long... We are looking at owning calls as a low risk way of capturing a possible short term bump.
Edit to add, I do not think there is a quarterly stocks surprise even remotely in the works. Everyone I talk to sits on more corn than normal, unpriced, and waiting on any opportunity.
Edited by LKM 3/10/2016 23:10
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Is Corn trying to tell us something
