This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Tuesday, January 28, 2014.
It appears the cash corn trade has come to a standstill over recent weeks as weather and lack of a selling catalyst has spreads and basis tightening. I want to point out the performance of the March contract against the other contracts in the 2014 crop year over recent months, so you can see what I’m talking about. For those new to hedging, playing these spreads to the short side (selling March against deferred contract) on these run ups can be viewed as an effective way to hedge basis. When producers do start to move grain, I think these spreads will retrace back to harvest levels.
I feel that there are two periods where producers liquidate cash corn because of need and these spreads have a good probability of working:
- Before March 1 – Producers need to raise cash to pay income taxes from the last year and pay for inputs for the upcoming year. Although many producers have enough cash on hand to keep the grain in the bin and pay for everything because of good 2011 and 2012 revenues, most will need to move some grain before the planting to raise cash. If this would occur, the spreads should take a hit.
- Before Harvest – Producers and elevators alike with bushels in the bin will need to move said bushels to make room for the new crop coming in. I expect to see this seasonal period exaggerated because there is more corn in storage this year than in recent memory. This seasonal could be especially violent as we will see the massive 2013 stored crop meet the market at the same time as the large 2014 crop comes to market.
Hedgers with corn in storage may want to sell one of these spreads as protection for grain in the bin:
MARCH VS MAY
MARCH VS JULY
MARCH VS SEPTEMBER
MARCH VS DECEMBER
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