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Ontario's middle east | Not sure what Trump supporters have to do with corn spreads and I ain't gonna fold the tin foil up to get into that. First of all looking across multiple crop years on the term structure doesn't tell you jack chit about anything. The market knows a lot about the current old crop supply and demand. Those spreads are indicative of what is happening in the cash market. Read Rob's post. Tight farmer holding tends to narrow the spreads because of the lack of front month selling. The old crop spreads are paying a little more than cost of carry but not near enough to make Rob say "Build some bins, I ain't ever selling corn again". This is a process to meter the crop out in an orderly manner. If Mr Farmer dumps on it, the spreads will widen to encourage commercials to store. Demand gets stronger, spreads narrow to pull it out of the bins. Supply and demand. Grains are unique compared to other commodities because we can't just dig another hole and supplement supply next month. New crop spreads are no where near cost of carry from crop year to crop year. Why would they be? Once we start to gather some knowledge of the crop size, acres specifically, the carry tends to grow. Go back and look at 2012. The market built new crop carry out into June of about 28c z-n as it expected a decent crop with decent acres and early planting. 2 weeks later, the market figured out it had a problem. That spread had inverted 25c. It was grabbing Rob by the throat and saying "if you are going to hold your corn off the market, I will lay you on the pit grate and run over you". The crop was short with lots of bulled up participants that were willing to hold crop for nothing but to satisfy their wild eyed optimism. The market rationed that corn out a little at a time. We didn't run out. The market works. I have said many times, I would be very careful trying to read market direction by what the spreads are saying. What the spreads are reading can/does/will change.
Edit: no Robs were hurt in the making of this post.
Edited by Maizeing 3/2/2016 02:51
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Should I be changing my tune right now ?
