Posted by: usset001 | May 6, 2009

Narrowing spreads continue

Jul'09/Aug'09 soybean spread

Jul'09/Aug'09 soybean spread

In a post dated April 17, I discussed the continued narrowing of interdelivery spreads and how that can be interpreted as a sign of a fundamentally strong market. Futures prices for corn and soybeans were soft in mid-April, with new crop Dec’09 corn and Nov’09 soybean futures trading at $4.07 and $9.35 per bushel, respectively.

Prices have rebounded since then – corn and soybeans appear to be stuck in a wide trading range over the past few months – but the spreads continue to narrow. The Jul’09/Aug’09 soybean spread was a 25 cent inverse in mid-April. Today the inverse closed at 41 cents per bushel. At the risk of repeating myself, this is not an indicator of a weak market.

Jul'09/Dec'09 Corn Spread

Jul'09/Dec'09 Corn Spread

Similar trends are occuring in the corn market, but the tightening is much more subtle. Positive carrying charges, not inverses, still rule in the corn market but the carrying charges are narrowing. The Jul’09/Dec’09 carry was around 21 1/2  cents in mid-April. Today it closed at 19 1/4 cents.

Assuming normal weather this spring and summer, I anticipate that new crop prices will trade lower by harvest. But don’t expect that trend to begin until the spreads stop narrowing.


Responses

  1. Perhaps the MWN-MWU spread coming in is an indication that spring wheat is running out of steam? The fact that today the spot floor was NQ on everything today doesn’t show much demand either.


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