Grain Spreads: Lack of Conviction So Far

Commentary

Corn rallied a whopping 1.4 cents today but is still down three quarters of a penny for the week. Tight ranges from the last two sessions as a lack of conviction in either direction is featured so far. Wheat broke over 25 cents to start the week amid heavy selling yesterday while today’s minor loss was rather subdued. Beans traded over 10.10 a few times to begin the week only to see a lack of conviction closing just at unchanged for the week at 10.06. For corn managed funds now only short about 135K. That’s down almost 220K from the record short made earlier this year at 353K managed shorts. Yet the price is only 4.12 on the December Board. I think producers are getting a gift here. This warm/hot dry weather late keeps corn yielding better and producing more with these hybrid seeds. Last year was a prime example. Corn grew at a 4 bushel per acre clip from late Summer to final.  Our latest WASDE last week rose slightly from 183.2 to 183.6 BPA. Its minor but growing not declining despite a dry August in most parts of the Midwest. Deferred pricing is at 4.30 March, 4.40 May and almost 4.50 July.  If one has unpriced bushels into and through harvest, consider the following. Brazilian government crop supply agency Conab initially estimated 2024/25 soybean production at 166.3 MMT, up almost 13% from last season, with corn at 119.8 MMT, up almost 4% year-over year. Total grain and oilseed production for the new crop cycle was pegged at a record 326.9 MMT. While Argentina looks to plant less corn and more beans, Brazil with decent weather can pick up most of any potential corn loss should it occur in Argentina. Hedge idea for unpriced bushels below in corn. 

Trade Ideas

Futures-N/A

Options-Buy the 430 puts in March 25 corn and sell the September 5.00 calls. Cost to entry even money minus trade costs and fees. 

Risk/Reward

Futures-N/A

Options-There is unlimited risk here. This hedge idea is suggested for corn producers only as the short calls/long puts may act as protection versus their future production. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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