Market Commentary for 5/12/25

Jon Scheve with weekly market commentary made on May 9, 2025

Understanding spreads in the futures market is important for farmers to hedge their positions effectively and can help to maximize a farm operation’s profitability.

What Is the Spread?

The spread is the price difference between two different contract months. For instance, on Friday May 9th the price for each contract month was:

• May futures - $4.42

• July futures - $4.50

• September futures - $4.29

When the nearby month is trading lower than the further out month, it is called a carry. The spread between May and July is an 8-cent carry, because the May at $4.42 is 8 cents less than the July at $4.50. A carry happens when the market needs someone to hold grain in storage until later months. The bigger the spread, the more incentive there is for someone to hold the grain longer.

Why Is This Important?

If done correctly, carry premium can be a low-risk way for farmers to capture additional profits for their farm operation. However, it only works when grain is already sold on the futures market, and typically it’s done before a cash value and delivery period has been established with a grain buyer.   

For an example, if using the closing prices on May 9th and my current position of having May futures sold at a theoretical $4.86 value; I could buy back the $4.86 sale for $4.42 today and then sell the same amount of July futures for $4.50 and collect 8 cents of premium. I now have “rolled” the contract forward to another month and collected the spread difference between futures account and taken my sale from $4.86 to theoretically $4.94.

While the new price point I have in my hedge account will look like its only $4.50 that doesn’t account for the profit of originally selling the May futures at $4.86 and then buying them back at $4.42 as part of the roll process. That is why good records must be kept to know the exact price point my corn is valued at to that point in time.

What If a Later Month’s Value Is Lower?

That would be an inverse market. Right now, July is trading at $4.50, which is a 21-cent inverse to the September at $4.29. This signifies the market wants corn sooner rather than later and is discouraging someone from holding their grain in storage after July.

Using the price examples and looking at my position from above, if I had rolled my May positions to the July already and now would roll them to the September, I would lose 21 cents after I buy back the July shorts sales in my account and then sell out the September futures at the same time. The market is clearly telling me to not do this with a price penalty. This means I should be looking to set basis and just lift out of my hedges against the July contract and be done marketing the 2024 crop sooner than later.

Why not buy back the May or July hedges and wait for a market pop to sell the cash grain?

Because that is pure speculation. Yes, that could turn a profit and seasonally there are times where the odds favor that to happen. However, that doubles my risk because I still do not have the new crop sold. That could place me in a position that if the market doesn’t go up, I lose money on both my old crop and the new crop. My goal is usually to reduce risk in my operation and capturing carry in the market achieves this in almost every marketing year. While not a home run play it’s a base hit and continues to help drive me to profitable levels.

The Spread Trades as Its Own Market

The spread can increase or decrease at any time, and it can go from an inverse to a carry (or vice versa) based upon the market’s needs. Essentially, the spread adjusts to spur grain movement or slow it down.

For instance, when there is a lot of grain in the market being moved quickly, the carry can become larger to incentivize the grain movement to slow down. However, when grain isn’t moving, the carry can become smaller, or an inverse can happen, to entice bushels out of storage. Significant rationing in the market can often create very large inverses.

Basis values around the country work in tandem with spreads to help make the decision to store or move grain as well. Additionally, the delivery process on the Illinois and Mississippi River, like I explained last week, can also impact spread movement.

Market Action – Spread Trade

As I previously shared, I have been 100% sold on the 2024 corn crop since harvest. I then rolled my sales forward from the December to the March, then to the May, and last week I rolled them again to the July contract.

By doing this, I can use the carry premium to offset the interest costs that occur when holding grain in storage while waiting for basis values to improve between harvest and summer in my area.

How Much Carry Premium Has Been Available Since Harvest?

While deciding when to make the March / May roll trade, I analyzed how the December / March spread traded. As this chart shows, it narrowed in its final months.

Then the January USDA report showed a tighter carryout than previously estimated, so I was unsure how the March / May spread would react. Before the January report, I thought it could trade to 11, which was wider than any value since harvest. However, following the report from January 13th to January 17th the spread went from 10 cents carry to only 8.5 cents.

I became concerned it could narrow even more to 5 cents or less because of the drop in carryout that was discovered in the January crop report. So, when it returned to 10 cents, I took it. Unfortunately, the spread continued to widen, and the carry increased another 6 cents.

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. Because the market was showing a tighter carryout after the January report, and after watching the December / March spread narrow considerably in its final month, I thought it was better to take the guaranteed 10 cents. Plus, I thought 13 cents was the highest the spread could likely go, so risking 3 cents of potential wasn’t worth it to me at the time. 

May / July Corn Spread Review

Last week on April 29th, the final trading day of the May contract before the delivery process began, I rolled the May contracts to the July and collected just over 9 cents. This was the highest value over the last few months, and a nice jump from several days before.

While I missed out on 6 cents on the March / May contract roll, I did about as well as possible on the May / July roll. 

I have managed to collect the following carry since harvest:

• December / March Roll – 10 cents

• March / May Roll – 10 cents

• May / July Roll – 9 cents

• Total collected – 29 cents

If I could have timed each trade perfectly, I would have made the following:

• December / March Roll – 19 cents

• March / May Roll – 16 cents

• May / July Roll – 10 cents

• Total collected – 45 cents

Over the last 15 years, I have collected an average of 25 cents of carry every year from harvest to summer. I’m satisfied that I at least beat my long-term average this year.

Does The 29-Cent Spread Carry Premium Cover the Cost to Hold Grain in the Bin?

With the average cash value of corn from harvest until now under $4.50 in my area and using an 8% interest rate on my operating note, it costs me 3 cents per month per bushel to hold my grain in the bin. This means the 29 cents I accumulated will pay the interest cost on my grain from the end of harvest until the 3rd week of July, as I wait for basis values to improve.

Bottomline:

I’m now 100% sold on my 2024 corn production at basically $4.95 against July futures. This means I’m sitting in the top 25% of the market’s range on the July ’25 corn contract since January 2024.  

Jon Scheve

Superior Feed Ingredients, LLC

9358 Oak Ave

Waconia, MN 55387

jon@superiorfeed.com