Grain Spreads: Sep21/Dec21 Corn

Sean Lusk General Commentary


Included here is a chart Sep 21/Dec21 corn. Old crop contracts continue to out perform new crop as end users chase this market higher amid managed money increasing their position to a record long in my opinion. Whatever corn is in farmers hands for now may remain there for some time. Its my view that they will sell at some point, but when? The July contract maybe expired by the time they do or at least past first notice day. That is why I have an eye on Sep21/Dec21. We have a double top at 28.4 cents Sept over. If I decide to short here, I would be out on a close or have a buy stop at 29 cents September over. I wouldn’t advise taking any heat on shorting any spread in this environment. Two reasons in my opinion why this spread could trade back to parity. First, rumors swirled last week that China is in the process of buying approximately 1 million metric tons of U.S. new-crop corn. However, the totals may be offset by some old-crop purchases getting rolled to the new crop marketing year due to anticipated limitations in China’s ability to ship all they have bought by September 1st. The corn is expected to get shipped, but not necessarily in the current marketing year – at least not all of it. Confidence that it will eventually all get shipped is fed by growing expectations that global corn supplies will tighten over the coming year. That could create an increase in the old crop balance sheet (ending stocks) versus a decrease in new crop demand. However the  balance sheet may not be altered by USDA until the July or August WASDE reports. Second reason is that producers finally sell out of the bin removing some stress in the cash market where basis eases amid favorable planting and early growing season weather. The counter argument here that would be against selling this spread would be the events taking place in South America. There are reports that Argentina may be considering new export taxes. Argentine corn prices are slightly lower than export prices offered from the U.S.  The Brazilian weather forecast is arid for the next two weeks as hope fades for winter corn yields. Brazilian corn will enter its reproductive phase starting later this week and continue into late May under increasing flash drought.  

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