Corn-Soybean Ratio Hits New Highs
Jul 17, 2013
December corn closed 8 ¾ cents lower today to finish at $5.02 holding that critical level of $5. A slightly wetter midday forecast and a stronger US Dollar Index were both factors in the price drop. As we progress into August the market could continue to take out some of the uncertainty premium they have built in. I think this is why we are seeing corn break while soybeans are still holding support. The market is pricing in a large weather premium for soybeans long before the critical month of August when beans are made. For this reason we want to keep plenty of downside coverage on your new crop beans. Wheat has been following corn lower but September Chicago wheat is still holding a fairly decent premium to September corn. Today’s EIA report was par with expectations for ethanol production/stocks and was not a major market influencer.
The USDA announced a new crop soybean sale to China for 165,000 MTs. The tightness of old crop soybeans has been a large supporting factor for the new crop as well. The corn-bean ratio is now at 2.56 to 1. This is historically high and the ongoing strength in this spread points to what I just mentioned regarding the extra premium beans are getting over corn as time progresses (see chart below). This is not due to a significant change in demand. It is from the change in the perception of supply. If we don’t get a large yield cut in beans as many are suggesting, and China doesn’t import 69 million mts as the USDA is suggesting, than this spread is probably overdone to the upside. Corn would have to rally against beans for this spread to come back into line. Another likely scenario in our opinion is that the spread trades lower but it happens in a bear market from soybeans falling at a faster pace than corn. Weather in August is still key for this spread so we will have to monitor the extended forecasts as we get closer. I am just pointing out that we can’t add a higher chance of a weather problem developing this year as we do any other year just because we have had three bad growing seasons in a row. Tomorrow morning we have export sales at 7:30 am. Analysts are estimating 450-650 soybeans, 1200-1400 corn, and 900-1200 wheat. Have a great rest of the week.
November Soybeans/December Corn
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.