On Friday traders saw a wild session. Old crop corn hit and closed limit higher in May alone. Old/new corn spreads blow up, and old/new bean spreads weakened on the rally. New crop beans gained on low acreage expectations, wheat gained on short covering and meal spreads spoke bearish. What a mess. Big shifts due to month end were seen with the bean spreads most bearish along with old crop meal. The biggest of note is the all the sudden bearish K/X bean spread. This spread topped around 54-cents and is now at 41. With the impending roll there is minimal interest in loading up in the front month. Remember that if this spread were truly “good” K/N would not be trading at a carry. I say this is money flow and now with acreage a question in new crop all the incentive lies with November over May. I feel this spread could easily trade right back into even money or a carry over the next 3 weeks offering great potential for bear spreaders.
On the other hand, traders saw K/Z and N/Z trader well wider as new crop acreage is all the sudden bearish. Let’s examine this: New crop acreage is thought to be 95.9 million acres with a new crop beans corn ratio at 2.54…interesting. There are way too many acres in the northern regions producers have not put nitrogen on. This means they can shift part of their all the sudden strong Minneapolis wheat to the fertilized land and plant more beans. As cash beans approach $14.00 all the potential lies with beans, not corn in the north. We will still plant plenty of corn but 96 million is too hopeful. Think closer to 95 million on the June acreage report. This is a shift to both oil seeds and spring wheat if the strength remains.
The interesting thing of note coming out of Friday was open interest. Big gains in corn and beans while only bean oil saw a drop. Looking into beans, a jump of 31,204 raises an eyebrow. If Friday was supposed to see profit taking due to month end I do not see it. Another concept to consider is index fund reweighting. If a fund has 4% of their portfolio allocated to beans, that percentage is now 5.2% following the 80-cent rally. Bloomberg put out a story stating funds trimmed their positions in commodities by 1.8% to end March but once again open interest does not agree. Corn open interest jumped 17K and meal jumped 5K. Significant gains in the face of questionable fundamentals. If the pull in meal is real, where is the cash bid? Remember that H/K meal left around 4-dollars to a carry. K/N will likely trend there quickly as soon as these funds roll which is over the next couple weeks.
Looking at the week ahead, markets have a gap in information with the WASDE report due out on April 11th. They do get the first look at crop progress today. Winter wheat is the focus with high expectations for ratings. Corn may show planting but this report is a preliminary number so do not expect anything aggressive. Outside of that look for pathetic export inspections for corn today with beans far better. Export sales on Thursday should show weak corn and hefty beans once again. The trend continues and shows no sign of abating with Brazilian basis firm. The market is closed on Friday for Good Friday so a shortened week condenses the activity.
As for today, a higher trade is expected but this is fading as markets approach the opening. Crude and the Euro are fading in spite of strong Chinese economic data. Negative European PMI data is the attributed cause for the weakness there. Old crop corn will likely win versus new crop but do not get bearish CZ corn, it’s a trap. Bear spreads should dominate as they approach the close due to money flow but look to try to take advantage of any pop in inversions. Overall it will be another exciting trade with opportunity abounding for risk tolerant traders.
Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.