Grain Spreads: July21/Dec21 Corn

Commentary

Despite old crop (20/21) corn ending stocks coming in at 1.352 billion bushels on last Fridays report, the focus in my view moving forward will be to where new crop stocks (21/22)  end up. Old crop pre report estimates were 1.379 billion bushels, so the old crop number was seen as slightly bullish. However we ended report day essentially unchanged in July 21 corn. Last night saw  July corn rallying 8 cents, but finished the day 6 cents lower. Much of the pressure today was unwinding of old crop corn, (May21 & July21). New crop Dec 21 finished the day unchanged. I included a July 21/Dec 21 chart. I think there is further opportunity to the downside should resistance levels hold on the July 21/Dec21 corn spread. My opinion here, but its my contention that if beans don’t retake 1420/1430 in old crop, that the pressure will remain in old crop corn and soy versus the deferred or new crop contracts. A couple points to consider. Managed money as of CFTC data last Friday has the managed long in corn 386K contracts. The all time record long per CFTC is 429K. In my view many of these longs remain in the spot or old crop contracts.  Second, if one assumes the demand numbers from the USDA crop outlook forum are correct while plugging in previous record high yield for corn, ending stocks come in at 935 million bushels with a stocks/usage at 6.2 percent. Going back to 1960, it would be the second tightest stocks/usage on record. Therefore it is my contention that any weather hiccup could spur heavy end user buying of new crop corn. Again my opinion here. Watch this spread. I think it could get pressured down to 40 cents July 21 over, which is a 50 percent retracement from last August’s lowto this years high. However a close above 80 cents July 21 over and I would exit. Use a GTC stop if you short this relationship per your risk tolerance. Call me with questions or comments as I have a few other ideas when looking at deferred contracts both for speculative and hedge in corn and beans.

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