Corn vs Soybeans:
We traded Corn vs Soybeans over the winter because Soybeans were priced too high over Corn based on old crop carryout and estimated new crop production. Here we are a few months later and again it looks like new crop soybeans are again trading at a premium to corn based on ending stocks expectations. The question we are looking into is if that premium is deserved.
So what is going on with Corn vs Beans? Why has Soybeans increased in value over Corn? New crop corn planting has been going very well and based on the weather forecasts the US overall should not have any material planting issues. We think all (or most) corn gets in the ground by their optimal dates. That is a big hurdle of uncertainty the corn crop has overcome. It is a hurdle of uncertainty that soybeans have yet to conquer as beans are typically planted after corn. The second great hurdle of uncertainty when it comes to corn and soybean production is growing weather (which will not be a big factor until June/July for corn and July/Aug for soybeans). So corn has passed test 1 of 2 while beans are just entering planting. The risk premium (weather premium) that was in corn for planting has come out yet still remains for soybeans. This in turn was probably the major factor in why corn has come down faster in price than soybeans (and why the soybeans – corn ratio and price difference has increased).
If soybeans get planted just as corn (and the forecasts suggest that is likely), then soybeans should trade lower relative to corn over the next few weeks. If Mother Nature does not cooperate, beans could continue to rally again corn. The worst case scenario is we flood in the next couple of weeks and we loss massive Soybean acres. In that scenario the 1 SX to 2 CZ could go well above $2.20.
I don’t want to enter this trade now but it is something we are keeping a close eye on.
November Soybeans/December Corn Price Ratio:
1 Nov Soybeans – 2 Dec Corn Price Chart:
Turner’s Take Corn and Soybean Supply and Demand Tables
Closed Positions: We closed our July/Nov Soybean spread this week at 26.5 cents for a gain of 10.5 cents. This short term bull spread was also part of our overall Soybean strategy this year. We are long the $9.40 SX put and short the $8.40 SX put from 35 cents. What I try to do over the year (and this is more of a hedger’s strategy for farmers but works will with speculators too) is pay for most or the entire put spread by bull spreading the futures during critical weather periods.
Open Positions: The July/Dec Corn spread is a little bit in our favor, the crude snapped back on us this week but we are still ahead, and we continue to hold our soybeans and corn options plays. For details on open trades, recommendations, and position management please sign up for a trial or subscription to Turner’s Take Daily.
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