You need to get the right ratio. Look at the relative contract size of corn to soybeans and neutralize for percentage moves. A Soy contract is currently $50*$736, a Corn contract is currently $50*$402. A ratio of roughly 2 corn to 1 soy is appropriate. 2C-1S
And probably you'd be right, in fact yours is just the chart of the day-by-day fight between soy and corn acreages, to let farmers be attracted by some soy plantation (i.e. hedged), otherwise soy from the next crop will cost surely too much. But the price of soy is still much more away than corn from the price should be to have an historical profitable value of crop (if I am not wrong, to be well balanced, soy and corn price ratio has to be about 2,3-2.5). For such a reason, I still rely on the classic soy/corn spread but more and more thinking to load one day cotton in place, partially or wholly, of soy. Reactions, suggestions and blames are very much appreciated.
I just don't know how much real substitution exists. If corn grows best in the midwest, and cotton grows best in the deep south, is there really a conflict here? I mean, you have to take yields into account. If a farmer can plant expensive corn at a lousy yield will he do that over cheap cotton at a great yield? So far, the market seems to disagree with your assessment. The Corn-Cotton spread is setting new highs virtually every week (including this one). Still, if I understood more about the substitution, it's an opportunity definitely worth looking into. I've been watching the Cotton/Soy spread, figuring they're both the "loser" crops that no one will want to plant. Thanks, TG.
Power of the fantasy, I never thought of a Cotton/Soy spread! It's a hipothesys to be working with for the week end and days on, maps and acreage being the data. Of course if we are talking of new crops, soy sounds as a bit less energy-demand sensitive than corn at the moment. Regards.
What a brilliant statement. Even the weather can be misread. (remember that) The news reports only say what they want the public to hear. They are NEVER completely accurate. I deal with farmers and ranchers all over the US and Canada and they are all aware they are grossly uninformed as to the accuracy of the ag data they receive.
The COT report shows that Commercials are progressively reducing either their long and short positions for RSW wheat. What does it mean? Thanks
The problem with trading a fundamentals-based idea like the soy/corn spread, is why on earth wouldn't that already be priced into the market? It's not as if it is new news. The fact that despite this, the spread is expanding, shows not that you should fade this move based on that idea, but that there is *something else* happening which has pushed prices this far despite the apparent reasons against it.
To each is own, but I find this a great trade opportunity. Look at the +soy -(2) corn spread for the past few months. You can almost envision the group mentality: "Oh no, not enough corn, buy corn!" "Oh wait, no one will plant soybeans at this price ratio, buy soy!" "But we have a lot of soy and no corn, buy corn!" "Priced into the market" assumes an instantaneous and universal agreement. Intelligent people believe different things. Take a look at the May/July wheat spread. You're telling me that on October 1st, the spread was worth carry and October 15th it was worth 80 cents premium, but now it's worth carry again and that move was entirely rationally "priced in"? People panic, overreact, rethink their positions, and those are all opportunities.
nice thread........good to know i am not alone trading somwthing other than currencies and stock index............