Grain Spreads: Too Much

Sean Lusk General Commentary Leave a Comment

The market has again been reminded that we have too much of everything thsi week. If that isnt the case now it maybe the case come harvest. This upcoming Tuesday’s on farm stocks and planted acreage report hasn’t scared many shorts in the grain sector thus far. Recent rains in the Midwest have eroded thoughts of too hot and dry moving forward that could have severe impact on future yields. The USDA has given traders bearish data from a supply side standpoint in previous reports. From Lean Hogs, Corn, and Wheat, supplies are predicted as more than ample for the foreseeable future. While we are likely to see future revisions to prior predictions in subsequent government reports, its my view that in this new Covid World that the Gov’t is not going to incite a grain/livestock driven rally citing any type of scarcity or tightness. Just my opinion here. Can the data get more bearish as we move forward? In my view it can. The trend is your friend. What the USDA can’t control is the weather. What’s needed is a heat dome moving into the growing areas of the Midwest, similar to the one that just parked itself in the Southwest (Arizona, So. Cal, Nevada) that resulted in brush and forest fires. Until a weather event that changes the psyche of the funds to at least cover shorts and perhaps go long the market, I have a hard time seeing the market sustaining a rally back to pre covid pricing any time soon. Early January 2020 pricing had new crop beans between 9.60 and 9.80 and new crop corn at 4.00. That seems so long ago. If you are a producer, there are option strategies that can lock bushels in at 9.00 in the January 21 contract, and 3.60 for March 21 corn. The strategy is to sell call spreads and use the credits to buy puts. Call or email me if interested at slusk@walshtrading.com or 888 391 7894.

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