This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Thursday, September 04, 2014.
I looked up at my quotes this morning and noticed that Oats, the poor mans grain market (sorry oat traders, I don’t mean to offend) was almost the same price as corn. I asked myself, when was the last time front month corn prices were cheaper than front month oat prices? Going back to 1996, almost never. In ’02 corn went under oats for a short period, but rallied hard right after the test of 0.00 that month. The only other time was early in q1 2014 when corn was bottoming (January) and Oats were rallying hard on logistical concerns. I’m not sure why exactly, but it appears Oats being cheaper than corn is a difficult thing for the market to handle.
So what’s my point? My point is that it might be more beneficial to shift your corn hedges into the Oat market if you believe there to be more downside in corn but you think we might see a correction and you would like to make some money on an upside move in your grain. That 0.00 level seems pretty solid support and if corn rallies and Oats doesn’t, your hedges will not get hammed as much as if they were in corn. If the Oat market sells off, I think corn has a good history of following step by step. Could we see corn get below Oats on this harvest? Sure, anything is possible. But the longer term history tells us we wont be there long and after each test since ’96, we have seen the spread widen dramatically in short periods after. Remember, Oats are a cheap crop to plant. What do you think is going to encourage acreage up north next year?
I’m just thinking outside of the box on this Thursday morning, let me know if you all have any thoughts or questions on how to apply a spread like this.
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