September options expired this week. Heading into option expiration, September corn and soybeans have made noteworthy moves versus the next contracts in the curve. Two weeks ago, September corn traded as much as 7.25 cents discount to December, but also traded as much as 7.5 cents premium to December to finish the week. This is the steepest inverse for this spread since July 16.
Meanwhile in soybean land, September soybeans were trading with as little as a 0.75 cent premium to November soybeans to start the week, and traded as much as 49.25 cents premium to November to finish the week. This is the steepest inverse for this spread since May 14.
As products head into delivery, spreads can often provide clues to the availability of product and the willingness of buyers to pay up for those products now. They can also be an indicator of the overall level of stocks for those products.
September corn’s minor premium to December doesn’t look that impressive compared to the premium September soybeans enjoy over November. However, if we compare apples to apples and strictly compare this year’s spread to the last decade of September/December spreads heading into delivery, only 2012 and 2013 stand out as inverted heading into delivery, with every other year typically offering 14-15 cents of carry from September to December. It stands to reason that the spreads and the cash market are trading like stocks at the end of September could be reported at a billion bushels or less for corn.
Soybeans seem to be painting an even tighter picture for old crop stocks as we finish the marketing year. The year 2016 was the last time September soybeans were premium to November heading into delivery, and that was the year Argentina lost a significant amount of soybean production due to late season flooding which kept international interest in U.S. soybeans abnormally strong. In 2014, September soybeans traded as much as $1.50 premium to November, just to trade $0.40 over two days later and then back to $1.20 over on expiration day.
The common theme here is the irregularity of September contracts trading at a premium to new crop prices at this stage of the game. The USDA will provide one more “guess” as to what old crop carry-in will be, and those numbers will be released as part of the September WASDE report. Just weeks later, the September Quarterly Stocks Report will be released. Those stocks numbers are our actual old crop carry-in. Based on the way spreads are trading, we wouldn’t be surprised to see old crop carry-in tighter than what USDA “guesses” in the September WASDE Report.
If spreads are painting a picture, and a picture is worth a thousand words, the words on the Quarterly Stocks Report might be friendlier than the market expects. With the Federal Reserve this week indicating that “premature policy tightening now could be particularly harmful” and “little evidence of wage increases that might threaten excessive inflation,” the inflation trade has little opposition into year end. There have been three Quarterly Stocks Reports this year and corn has been limit up on all three. Let’s see if we can make it four for four. As always, feel free to contact me or anyone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.
Reach Brian Splitt at 847-946-2080 or bsplitt@AgMarket.Net
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