Corn futures rallied nicely off of the lows made last week at 3.67 in the May contract, making a high of 3.97 as of this writing. We thought the downside was overdone and we don’t see a reason why directional traders need to build a meaningful short position going into the growing season. Corn should remain the long leg of relationship trades versus wheat and beans until the crop is made. The Dec15/ Nov 15 corn bean ratio spread is trading around its lows in the 2.29 area. This has been the best trending trade on the floor for about 8 months and should continue to work if acreage assumptions are confirmed on Tuesday. There really isn’t an economic function to this trade anymore with planting decisions pretty much made, but market action should keep the trend going.
Our idea of bull spreading the Dec 15/Dec 16 corn has worked as that spread traded in from -15 to- 7 as the market sets up for the Prospective Plantings report on March 31st. I would not enter new positions at this price and time, but a move back to the -15 area will be support. In old crop, the window for the index rolls begins Monday and should keep spreads from firming. The May/July Corn spread probably pushes out slightly to -8 ½ or -9 area but not much more, and May/Dec Corn and July/Dec Corn probably push out with it.
Soybean futures rallied about 40 cents off of last week’s lows as the markets saw short covering across the floor. Cash market basis levels were firmer at the Gulf and in the interior which helped take July/Nov back to the +26 area and May/July in to -3. Both spreads backed off some towards the end of the week as the round of short covering seemed to die out. While bean spreads firmed product spreads and board crush were weaker. Cash meal continues to weaken which is the key factor in overall market action in the bean complex. Without strength in meal, look for flat price and spreads to weaken in meal and beans, with oil share benefitting.
July oil share is approaching the 33% area and probably needs some closes above the 34% level to confirm the move for technicians, this most likely happens on the back of a breaking meal market, if it does at this point, as bean oil doesn’t seem able to show independent strength. Our bias remains the same given current fundamentals , that oil gains on meal and bean and meal spreads weaken. This assumes the typical amount of strikes and labor interruptions in South America, not any prolonged logistics problems.
Disclaimer: There is a substantial risk of loss in futures and options trading. This report is a solicitation for entering a derivatives transaction and all transactions include a substantial risk of loss. The use of a stop-loss order may not necessarily limit your loss to the intended amount. While Current Events, Market Announcements And Seasonal Factors Are Typically Built Into Futures Prices, A Movement In The Cash Market Would Not Necessarily Move In Tandem With The Related Futures And Options Contracts.