Changes Coming to Corn Carry, Requires Marketing Differently

Joe V Markets 041819
Young corn plants ( Sonja Begemann )

Corn spreads are changing and it could have an impact on marketing decisions. Joe Vaclavik of Standard Grain detailed how farmers may need to change their thinking during a recent conversation with AgDay's Clinton Griffiths

"If you look at your corn spread say December 19 out into any of the 2020 contracts they are right now about as wide as they would typically be at harvest following a good crop," says Vaclavik. "They are very wide." 

He says the CME Group and CFTC have increased the storage rate that they're going to use in their calculations from 5 cents a month to 8 cents a month. 

"Essentially, what this is going to allow is more carry to exist in the market if it's necessary," says Vaclavik. "If we're oversupplied or supplies remain burdensome those carries can widen out."

Vaclavik says that's going to affect a couple of things when it comes to market action. 

"First off, if you're a farmer, you probably have to chang the way that you think of the corn spreads in some respect," says Vaclavik. "The other issue here is that we've got a record short in the corn market and I will tell you, it is much easier to maintain a short position in a carry market than it is a long position."

This change is going to make it easier for the funds to stay short the corn market. 

"It's kind of like what they've done in the wheat market for years," says Vaclavik. "They'll just carry this short position, even through rallies they can carry it and they can roll and capture it."

See Joe's entire explanation and the impacts for farmers in the video below.