US Corn Market Sees Bearish Trend as Soybeans Remain Bullish

The US corn market is heading into fall harvest, and analysts are using Cost of Carry tables to evaluate which markets to hold and which to sell. At a recent Barchart Summer Road Show event in Shakopee, Minnesota, attendees discussed the importance of these tables in determining commercial traders' needs for cash supplies.

Cost of Carry tables calculate the total cost of storing grain in a commercial facility, including storage costs and interest rates. Analysts look at daily, weekly, and monthly closes to determine the percentage of calculated full commercial carry that spreads cover. A spread covering 70% or more is considered increasingly bearish for the commercial outlook, while less than 30% indicates an increasingly bullish view.

As of August 7, the September-December corn futures spread showed a bearish trend, likely due to leftover old-crop supplies and new-crop bushels from early harvest areas. However, the December-March spread was neutral, indicating commercial traders are comfortable with supplies in relation to demand during the bulk of the US harvest.

The soybean market also saw an interesting trend, with the November-January futures spread showing a neutral level of 53% calculated full commercial carry covered. The January-March and March-May spreads were bullish, but trending down, suggesting that once the gut slot of harvest has passed, the commercial view quickly changes to one of concern over supplies in relation to demand.

For US producers, this means considering their hedging strategies based on market trends. If a producer has nearly 100% of her expected production hedged, she may want to hold short hedges of December futures and fold (sell cash) and cover short hedges in November futures. However, if the producer has no or very little hedging, they may consider holding cash bushels in storage based on bullish deferred futures spreads.