Just took profit on z/k corn -- probably too soon but it was a resting limit order from days ago. Wow -- soybean hell! Shorted the aug-nov bean spread yesterday at 133 since it was looking like a real reversal for a minute -- worked great -- 5 1/2 cents up in just a few minutes -- until I turned to look at a possible eurodollar spread, looked back and WHAM! I found myself in bean hell. Tried to cut losses with limit orders but market ran through my fingertips. After it closed I wrote a nervous email and it gapped back open and kept running. I didn't use a stop b/c of the volatility. Belatedly read news of China's big old-crop bean order but still thought the market should pull back, and finally it did, and I closed out this morning for a 4 cent loss -- ouch! Closed out a little too soon I guess since it could have come away as a profit but a four-cent loss is just fine compared to the nightmare I was staring at. Ate my corn profits up exactly though. At least my interest rate and energy spreads keeping me on the winning side. But that bean spread scared me, and also I guess taught a little about the old crop new crop dynamics. Though I still don't really understand how much old crop is affected by new crop news under what circumstances, but some tuition has been paid for a teachin' by the markets...
it's hard to say but I am also watching the new swaps to see if they pick up too....neither is looking that interesting yet.
anybody have a fucking clue as to why the hell new crop spreads are up huge on the day???? I just dont understand how there can be no deliveries against july when ending stocks are huge and its a picture perfect crop on the way. All corn spreads should be going off the board at like 80% full carry imo.
Youngtrader, that is an excellent question. We have to consider a couple of different things. 1) As you noted, July corn is in delivery though no contracts have been delivered. This can, and often does, lead to some peculiar behavior in the spreads. 2) Export SALES are strong. Last week's report showed total sales of 1.741 bb of a projected 1.75 bb. This means that there is some short-term commercial demand in this market that is helping to support the spot-month July. The weakening carry in the new-crop spreads is fascinating as well, for as you said, carryover stocks are not going to be a problem, and neither is expected production at this point. But, the weakening carry (roughly 65 percent to 70 percent of full commercial carry) in the new-crop Dec/Mar, Mar/May, and May/July spreads would indicate the sharp selloff seen in the market over the last four weeks is starting to generate some commercial buying interest. However, the longer-term picture is not bullish. I posted a blog item this morning looking at the corn continuous monthly chart and its bearish signals. It will be interesting to see what develops.
How do exchange rates affect spreads? Would a us dollar move affect the curve equally, or would you expect it to affect the front months more? Maybe it would have to do with the market's interpretation of the dollar move as temporary or structural? Do interest rate / inflation expectations play out on the curve in any way beyond the simple change in physical carry costs? I'd love to find a study about these more macro sides of futures curves for physical commodities in general.