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May corn surged over $.40 higher for the week while May soybeans settled $.50 higher. New crop values lagged with only marginal gains. Wheat prices closed over $.25 higher for the week.
The grains markets rallied this week on the back of steady export demand with most of that demand originating from China. China has effectively taken advantage of every breakdown in corn values near $6.00, over the last several months, to aggressively make new corn purchases. This demand combined with the lack of grain movement in the country has led to historically high inverses in old crop corn spreads.
This week May corn vales traded out to a $.28 premium to the July contract. The last time that the spread traded to that much of an inverse was in 1996 when the Stocks/Use ratio was similar to this year. The spread that year topped at $.26.
The surge to May corn values is simply tied to the lack of cash corn available to processers and exporters. The focus of these end users seems to be to grab corn receipts and to take delivery of the cash inventory.
This leaves those holding short May futures in the unenviable position of either making delivery or bailing out of their short hedge positions. That has led to a late week rally in the spreads that will likely continue next week until the open interest in May corn is at a more manageable level.
Once a sufficient number of weak short positions have evacuated the market the spreads may begin to correct. The soybean market will continue to be supported by strong near term demand and a tightening balance sheet.
I suspect that a rally in July soybeans toward $15.50 and November soybeans back near $14.00 may be in the cards next week. December corn seems to have found a comfortable price near $5.40 for now. Whether December corn trades first back to $5.80 or down to $5.00 will be determined by weather over the next few weeks.
(click the charts below to enlarge)