Jon Scheve with weekly market commentary made on February 28, 2025
In 8 trading sessions, the corn market has lost nearly 50 cents per bushel. May corn is now trading similar levels to right before the January USDA report was published.
After the January report, basis weakened throughout the US, while the March / May futures spread widened. These are common signs of an upcoming futures value correction, which is what ultimately happened.
This means anyone who went long futures, on or after the report day, and did not liquidate their positions, are likely upside down and losing money on their trades.
Can Corn Go Back Up?
Export demand has been great, so this price decrease should keep US corn competitive globally until mid-summer. So far, US farmers have sold nearly 75% of their 2024 crop to end users and commercial grain companies. For that remaining 25%, I expect farmers will wait to see how weather is impacting the new crop in July.
Most end users will have good coverage on for at least another month. In the meantime, commercial grain companies will wait for basis to rally until early summer before moving their grain. But if basis rallies and the May / July spread tightens, there is a good chance futures could rally again.
Market Action
As I shared previously, I am 100% sold on the 2024 corn crop and had rolled my short futures position from the December to the March contract. On January 27th I rolled my March sales forward again to the May contract and collected another 10 cent premium.
As I have shared before, this chart shows the December / March corn spread narrowing into the final month of trading.
After the January USDA report showed a tighter carryout than previously estimated, I was concerned how the March / May corn spread would react. Initially, I thought it could trade to 11 which was as wide as any value since harvest. However, on January 13th, it went from over 10 cents back to only an 8.5 cent spread on January 17th.
I was concerned it could narrow to 5 cents or even less, so when it moved back to 10, I took it. Unfortunately, as this chart shows, the spread continued to widen and pay more carry profits to store the corn while waiting for better basis values.
In hindsight, I should have waited until the end of February to roll my March futures to May, because it went to 16 cents. However, that would have been hard to know at the time. The market was showing a tighter carryout and after watching the December / March spread narrow considerably in its final month I felt it was better to exit with a guarantee of 10 cents additional profit. Plus, I thought 13 cents was the highest the spread would likely go, so risking 3 cents of potential wasn’t worth it to me at the time.
Does That Spread Premium Cover the Cost to Hold Grain in the Bin?
Corn’s cash value in my area at the time of the spread trade was $4.75. Assuming an operating note of 8% interest, it costs me 3.16 cents per bushel per month to hold the grain in the bin longer.
The premium I collected from the December / March spread had covered my interest cost from the wintertime until the end of March. With this new trade, I am making an extra 3.68 cents per bushel above and beyond my interest costs to hold the grain in the bin for any additional amount of time until the end of May while waiting for a better basis value.
Plus, I can still roll these May sales forward again to the July contract and potentially collect more premium while waiting for better basis values into the early summer if I so desire.
Bottomline
Currently, I have 100% of my 2024 corn production sold at what is basically $4.86 against May futures. While I would have liked to make a few more cents on the roll trade above, I’m comfortable with my current position.
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
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