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Grain Hedge

RSS By: Brock Schimbeno, AgWeb.com

Grain Hedge is a self-directed discount brokerage that saves farmers money when trading in the futures and options market. For $7 commissions per side producers can execute their marketing strategy with authority, any time the markets trade.

Could Corn Spreads Explode This Summer?

Mar 14, 2012

Over the last several weeks many traders and producers have been talking about the spreads between front month and deferred contracts.  A couple issues are surrounding the July-December corn spread in particular.  First, ending stocks appear as though they will be tight once again as we head towards the end of the marketing year and summer.  This will continue to add support to the front month contracts, especially the July and September contracts, when the stocks could be the tightest.  Second, the deferred contracts will be pressured lower by the prospects of a historically large acreage being planted for corn.  If planting gets completed without a hitch and the weather remains favorable, we should see record production sending the market much lower than we stand today.  It seems as though the July-December corn spread will become even larger through summer.

Take a look at the chart from our trading software Firetip.  This chart depicts the July-December corn spread dating back to this time last year.  Exactly one year ago, the spread was sitting at a 63 1/4 cent premium to the July contract.  We did head lower until pipeline supplies became a concern in late summer.  This spread rallied to a high on August 30th achieving a 126 3/4 cent premium for the July contract.  Currently, the spread is sitting at a 92 3/4 cent premium to July after breaking through resistance in the 80 cent area.  If we see the 94 million acres or more planted and quarterly stocks revised lower this spread will likely explode higher.  Considering that the spread is already nearly 30 cents higher than a year ago shows that the market is already concerned about old crop supplies.  If you would like to follow this spread or chart other contracts, sign up for a free demo below!

July Dec corn spread 2

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