Capture The Carry in 2017

 We want to try to capture carry in the corn market, and add some flexibility to our 2018 crop marketing plan. One idea is this:

Do a bull spread on corn:

  • Buy Dec 17 - $3.50
  • Sell Dec 18 - $3.96

Currently this spread is trading at 46 cent carry, we believe that once harvest is winding down and corn is in the bin, not much corn will be priced at current levels and we will get a rally.  Our bias is that nearby corn will rally more than corn farther out, due to excellent world demand, a lack of willing sellers, and a desire to hold into the next tax season.A goal on this trade would be to net 12-15 cents.   

If this happens we can take the gains on the spread and either wait, sell 2018 cash corn, or simply leg out of the long leg (sell Dec 17 futures) and hold the hedge in 2018 which will now add up to net over $4.00 corn basis Dec. 2018 futures.

The goal is to get something better than $4.00 Dec 2018 corn sold, potentially net $4.15 or $4.20 corn if we get a small rally in Dec 18 to $4.05.

If the market falls, and the spread still narrows, pocket the 15 cents and wait for a weather rally later this winter or spring.

We also feel that locking in carry’s by selling Dec 18 can be used for:

  • Old Crop 2017 sales (roll spread back to Sept, July or May as spreads or carry narrows) Dec 17-July 18 is 30 cents, if this narrows to 18 cents, we have $4.00 July 18 corn hedged….
  • New Crop 2018 sales as outlined above.  You can deliver in the fall by setting basis, or roll to March 19, May 19, July 19 etc when spreads or carry is widest (got out to 30 cent Dec / July this year…) which adds to price.

This gives us the flexibility to respond to changes in market attitude, and respond to the more reliable indicator of price direction which are the spreads. Whichever you choose, the goal is STILL to get our corn sold at a PROFIT