Weekly Ag Spreader Report: Corn Bulls Dealt A Blow

Corn bulls, ourselves included, were dealt a blow with the results of the quarterly stocks and prospective plantings report last Tuesday. Stocks up and acreage higher than expected did damage to the story for tighter ending stocks in the 2015-2016 marketing year. Old crop carry-out will be increased in the April report and there will be more margin for error going forward as far as new crop yields are concerned. That said, the crop still has to be made and the 166.8 national yield is aggressive. There is much debate about where the final planted acreage will end up, but with this number, upside potential becomes more limited. There was a big reversal in the corn/bean ratio from the lows of 2.25:1 to the high Wednesday at 2.41:1.

This trade, and other bullish corn positions recommended here, were predicated on the lower acreage assumptions common in the trade. The Dec15/Dec16 spread held its support point of -15 on Wednesday, but we could see a push out to -20 if planting weather looks good, where it would probably be a buy. Bottom line, it comes down to weather at this point. As for old crop, our bias has been to be bear spread old crop/ new crop so look to buy Dec sell July at -16, looking for a push out to -22, -23 area. Or buy Dec/ sell Sept around -8 if it gets there. We don’t have a strong bias on outright prices as the market is still in a months long range trade at this point. Seasonal considerations would argue for the long side but don’t feel chasing strength the way to go here, more inclined to buy dips as a breakout doesn’t look imminent for a few weeks. Pretty neutral right here.

Soy complex trade continues to be difficult. Fundamental considerations are bearish both domestically and on a world basis, but with the whole trade leaning heavily to one side, Tuesday’s report didn’t deliver the bearish news so widely anticipated. The results of the report couldn’t really be considered friendly, but relative to expectations, the market rebounded. The markets saw general commodity buying across many sectors on Wednesday and soybeans benefited as old crop approached the $10.00 level once again, in what was a purely technical affair.

We look to Chinese bean demand, which hasn’t been overly aggressive recently, and cash meal values, which continue to slide, as indicators. Neither one of which make us overly friendly. The only bullish factors are speculative shorts and seasonal considerations for weather induced rallies. The oil/ meal relationship continues to frustrate many in the trade as meal futures remain resilient and oil can’t muster any independent strength. Ultimately we believe oil will gain on meal if/when crush rates come down.

RISK DISCLOSURE: 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.