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Market Commentary for 4/30/21
May / July Spreads
This week’s biggest story was the inverse spread between the May and July contracts. Generally, inverses indicate the market is short on supply.
Corn:
Corn rarely has inverses in the spring, so this is a big deal. Last Monday, the spread opened with May being 23 cents higher than July. By Thursday’s close it was 51 cents higher. These levels haven’t happened since spring 2013, following the 2012 droughts.
Thursday was the last trading day on the May futures for most market participants before the delivery process starts on May contracts. Therefore, it was also the last day that the May contract had a daily price limit. From now until its final trading day in mid-May, May futures movement won’t really matter because there are few market participants trading it. Everyone’s focus will now be directed to the July.
On Friday, July futures were up the limit of 25 cents. However, an analysis from the options market suggested that July corn was trading at $6.85 or 12 cents above the posted close.
Beans:
Similarly, beans had a spread swing this week. On Monday beans were at a 13-cent inverse and by close of trading on Thursday they were trading a 40-cent inverse Thursday.
Huge Basis Increases
The second biggest story of the week was the massive basis values increase throughout the western belt for both crops.
Corn:
This massive May / July inverse also had a significant impact on corn basis values and caught a lot of end users without enough coverage off guard. This forced many end users to scramble to get coverage in place quickly. Plus, with fewer planted acres last year, the northern states are nearly out of corn, causing basis levels to surge 50 cents higher than normal, with some farmers telling me they have never seen basis values like this before.
Basis values in the middle western part of the corn belt are also 50 cents above normal, which is the highest level in 8 years. Interestingly, the eastern corn belt seems to be the least affected, only about 15 cents above normal right now. Consequently, this is causing corn to be shipped in strange directions from what is normally expected.
Beans:
Bean basis is also much higher than normal with many areas in the western belt reporting 70 cents more than normal. However, the far eastern bean belt still has normal basis levels for now. As with corn, beans may start to move in strange directions to fulfill demand. With no cancellations yet, many end users fear the US could run out of beans in late summer.
Looking Forward
Basis and spread adjustments have helped ration demand some, but they can only do so much. With what we know today, the most likely scenario would be for the futures market to rally significantly for both crops to incentivize the market to slow consumption or induce cancellations. With many end users of both products still profitable at current price levels though, it seems a big and quick rally may be needed to curtail demand.
With the eastern belt not enjoying the same basis value increase as the west, corn and bean imports to the east coast may be a real possibility this summer.
Want to read more by Jon Scheve? Check out recent articles:
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Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
