What's up with the wacky CBOT corn spreads?
(The opinions expressed here are those of the author, a market analyst for Reuters.)
NAPERVILLE, Illinois - U.S. corn supply estimates for the waning 2024-25 marketing year have been dwindling in recent months, though a notable rebound is expected for 2025-26.
But the futures market might not be reflecting these trends, leading many to wonder if old-crop stockpiles are actually larger than the government has predicted.
Normally, that supply trajectory might put Chicago futures in an inverse, where old-crop corn is pricier than new-crop. But so far this month, CBOT July corn has traded at an average of around 3 cents per bushel cheaper than December corn , reflecting a small carry in the market. Analysts think the U.S. Department of Agriculture on Thursday will trim its forecast for 2024-25 U.S. corn ending stocks to 1.392 billion bushels, rendering stocks down 21% on the year. In past Junes, such a decline in corn stocks has been associated with July-December inverses exceeding 50 cents.
The closest comparison in terms of stock declines would be 2018, when July-December corn traded at a 21-cent carry during the first two weeks of June. At that time, U.S. 2017-18 ending stocks were pegged to ease 8% on the year, but the actual estimate was more than ample at 2.1 billion bushels.
This demonstrates that contracting year-on-year supplies can be associated with market carry in June. Additionally, there are examples (2008, 2018) where this carry existed despite a reduction in stock estimates over the previous several months.
Still, the current setup may suggest that either July futures are too cheap versus December, old-crop stocks are being understated, or some combination of both.
PARSING PROBABILITIES
Given the present market structure, what might this mean for old-crop corn stocks – and trade expectations – moving forward?
If old-crop stocks are too low, it may not come to light on Thursday. There is no relationship between the old-new crop futures spread and the trend in USDA's old-crop ending stock estimates from May to June.
Fast-forward to June 30, when USDA publishes its June 1 stock survey, and the chance for a bearish bomb increases. Since 2008, whenever July-December corn traded near flat or in a carry during early June, analysts underestimated June 1 corn stocks about 73% of the time.
On the flip side, analysts underestimated June 1 corn stocks in just one out of six years when old-new crop corn featured a strong inverse relationship.
Since 2008, there is also a 73% hit rate for final corn ending stocks to be the same or higher than was estimated in June whenever July-December corn traded near flat or in a carry during early June.
This same early June spread, however, does not suggest that final ending stocks will be bearish as the trade has gone on to both underestimate and overestimate September 1 corn stocks.
WAKE ME UP WHEN SEPTEMBER ENDS
The outcome is still wide open for the end of September, when USDA will publish final 2024-25 corn ending stocks. But right now, CBOT corn for expiration in mid-September is the cheapest of the bunch.
July-September corn is trading at an inverse averaging 12 cents per bushel so far this month, which is unusual given the slight carry in July-December. The historical relationship between these spreads suggests that one or both are a bit out of sync.
With multiple anomalies in the futures market setup having been identified, this might simply mean that 2025 is an outlier year. And if that's the case, historical odds may be increasingly less reliable from here.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X.
(Writing by Karen Braun; Editing by Matthew Lewis)
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