We have seen sizable bounces in old crop/new crop spreads of late given the rallies in corn and soybeans from the September lows. The late growing season has extended questions on what final production might be. The USDA has been very optimistic with corn yields and production and has been consistent in their view throughout the year. Yield and ending stocks will be higher than what was been anticipated per trade guesstimates. We will get another update from the USDA in November. The Dakotas, and parts of Nebraska, Iowa , Illinois, Minnesota, and Wisconsin have just endured a harsh winter storm this week that brought heavy snows to large areas of the Dakotas while bringing frost/freeze like temperatures to the Midwest over a couple days. With maturity levels so far behind in these areas it gives thoughts to a crop getting smaller, not larger. Below is March 20/Dec 20 corn. Buy off support if this spread reaches 8 to 9 cents March 20 under. Stop loss at 15 under. Six to seven cents risk on the trade plus commissions and fees. I’m looking for this spread to potentially rally to the fifty percent retracement level of 11 cents March over if not further given the potential crop damage.The spread settled at 4.4 March 20 under today.
Funds have flipped from 45 K short in beans a few weeks ago to approximately 40 K long as of today’s close according to some analyst opinions in the trade. In my view they can build a lot more. Question is will they or will price succumb to harvest pressures with 26 percent of the bean crop harvested at this point? The weather window in the South and West has opened up this week with dry conditions and temps above frost/freeze. Unlike corn, the USDA has consistently lowered yield for the most part in monthly WASDE reporting and has ending stocks at 460. If those are lowered further and weather issues emerge in South America, we could see a powerful rally up to 10.40. Conversely with demand in question and the crop coming in without hiccups, producer selling coupled with hedge pressure could pressure a spread like July 20/Nov 20 beans to trade back to a carry from the 3.6 cent inversion on today’s close. If beans can hold 923 and 910 to the downside basis January, I look to buy this spread on a break at a 5 cent carry or July 20 under November 20.
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