Grain Spreads: No Rally to Waste

Sean LuskGeneral Commentary


Short covering has been the recent theme of the corn market as it follows beans, meal and wheat to the upside. Current managed money positioning for corn is short 195K contracts for both futures and options. Funds hit a record corn short in February at 370K. This is leaving many to believe that corn could trade significantly higher if funds cover all of their shorts. The balance sheet for old crop corn is still at 2.15 billion bushels.  Friday, we get out first look at new crop ending stocks. The average trade guess for 2024-25 ending corn stocks is 2.284 billion bushels, which is maybe 100 million higher than projected current-year stocks. In my view anything over 2 billion is considered bearish from a stock to usage perspective. However, the market transitions into a supply side driven market now that planting has begun. The USDA has corn planting progress at 36% as of this past weekend, up 9 points on the week, but down 6 points from the same week last year, and down 3 points from the five-year average pace at this point in the first week of May. Most of the planting progress per USDA was east of the Mississippi while anywhere it’s been wet saw little to no progress to nobody’s surprise. While too much rain may delay plantings in some areas this Spring, large soil moisture deficits across much of the Midwest this winter may have been erased while soil profiles have largely been refilled. The torrential flooding rains in southern Brazil that has taken the lives of 75 people, and misplaced hundreds has said to have wiped out the last 25% of the bean crop in Rio Grande Del Sol, which was predicted to be Brazil’s second biggest producing area. This has sent funds liquidating their short positions in meal and beans. Hot and dry conditions in Russia the last 6 weeks with not much relief in sight have wheat shorts liquidating. Finally, a leaf hopper epidemic in Argentina, where the insect only eats the corn is said to be the worst in the country’s history. These weather and black swan events have entered into the market in the last week to ten days. They may be nothing more than a mere rounding error as far as production is concerned at the end of the day where one buys the rumor and sells the fact.  However, you combine them with the fact that the Fed and Treasury are still bent on printing money and talking rate cuts, and the inflation play along with production headwinds creates an easy choice for fund managers in grain; take profits. One can always re-short again if need be and in many instances over the years, many funds like to clean out their books ahead of growing season. The aforementioned issues gave them the reason. I think corn producers heading into the 24/25 growing season should be looking to put on small percentage hedges using March 25/May 25 or July 25 options by mid-June. Locking in 5.00 corn on a small percentage should be the goal. I can help with option ideas. Dec 24 corn will be the chart worth watching and most actively traded come June. Daily chart attached. Support is at 4.78, 4.70, and 4.60. A close under 4.60 and its the Feb lows at 4.47. 4.92 just above todays close is first resistance. A close over and it’s the gap at 5.03 and then the 50% fib retracement at 5.06. A close over 5.06 and we trade up to the 5.17/5.20 area. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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