Grain Spreads: Key Reversals for Corn and Beans
Commentary
December Corn and November Soybeans experienced reversals on the charts today. Will it come to fruition and lead to lower prices? It is my view that the attention could now turn to the potential record size of this year's U.S. corn and soybean crops. Considering what has been seen from private estimates and crop tours, there's growing consensus that they will be record large in my opinion, with an overall dry pattern expected to facilitate rapid harvest. One can argue about the final yields, but we could come into a situation that might stretch storage capacity, pushing more bushels onto the market during peak harvest that could increase pressure to both basis and futures. That may or may not produce new lows for futures, but what lies ahead is expected to cap rally potential until we get the bulk of this crop in the bin in my opinion unless a black swan enters into the market.
Combines have already started to roll but harvest will continue to accelerate over the coming month. With harvest will come yield reports that will give a better idea as to how big this year’s crop actually is. Given that some producers are still selling old-crop corn could lead to some extended harvest selling pressure as farmers are both selling off the combine and selling to make room in bins. The Mississippi river is also fairly low and is expected to continue dropping, which has led to traffic closures in the southern portion of the river. Lack of rain could lead to additional closures further upstream as well, exacerbating the supply glut.
For soybeans today’s price action encompassed an outside day down and a move back below the 40-day moving average following a reach to a one-month high in early trade. Fresh Brazilian crop estimates likely spurred some selling after a Reuters poll projected the country’s soybean crop could rise 14% for the 2024-25 season, compared to last year. Harvest weather as well as conditions in South America will likely have traders’ attention over the next month, as planting efforts begin to ramp up in South America. While much of the U.S. has endured recent heat, which has lowered some expectations of later planted soybeans, Brazil and Argentina have each endured dryness, which is expected to persist in the next ten days. Multiple weather sites report dryness in Argentina will be relentless over that timeframe, though some improved rainfall is expected late in September and October. Meanwhile, Center South and Center West Brazil will also continue to experience net drying conditions for the next ten days, with light rainfall expected late in the month. Crop scouts and forecasters maintain improved soil moisture for early planting must occur late in the month and in October to induce favorable planting and early season crop development potential. If you still have unpriced bushels into harvest, you may consider the following hedge ideas in corn and beans especially if you are storing either in the bin. Hedge ideas and charts below.
Corn
Futures-N/A
Options-Buy the March 25 corn 4.20 puts. Sell the Sep 25 5.00 calls. Buy the risk reversal at even money minus trade costs and fees.
Risk: Unlimited as one is naked short a 5.00 corn call that does expire until late August 2025. The goal here is to put a floor in price at 4.20 into late February 2025.
Soybeans
Futures-N/A
Options-Buy the May 25 10.00 puts and sell the July 25 12.00 calls. Buy the risk reversal at even money minus trade costs and fees.
Risk: Unlimited as one is naked a July 25 12.00 call that doesn’t expire until late June 2025. The goal is to put a floor at 10.00 into late April 2025.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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