To even the casual onlooker, recent corn price movement would be confusing and seemingly lacking any real direction. That direction will hopefully become more settled as we learn more about the crop, its size, and quality. However, much of this may not be figured out at harvest. To add to the complexity of this fall's storage decision, we have one more thing to understand as it relates to storage and the opportunity found in carry.
Last summer, the CME responded to ongoing concerns expressed by the National Grain and Feed Association (NGFA) about convergence between cash and futures prices through the long established delivery mechanism for corn and soybeans as made available by the CME. The fruit of those discussions will be visible as we head into this fall. To put it simply, monthly storage rates for the two commodities will likely expand from 5 cents per bushel to 8 cents per bushel.
Storage rates, as charged by CME delivery warehouses, have historically remained static ($0.00165/day) and arguably have been part of the long standing basis void many struggle to understand, particularly in soybeans. The new rate will become $0.00265/day. While such a change may seem disruptive and revolutionary, this is not the first time this tool has been used. The CME instituted the very same mechanism in Chicago and Kansas City Wheat futures in 2010. To better understand how this all works, please read the text and watch the video put together by the CME here.
Given that this year's crop is anything but predictable, the current carry structure may be challenged as harvest unfolds. A smaller crop will likely give very little respect to traditional carry structures and may in fact cause an inversion in prices where nearby contracts trade at a premium to deferred contracts. However, should a larger than expected yield be realized, carry could expand quickly. The August report will give some great insight into which of these two paths is more likely. A full view of the current spreads from December corn futures forward to spring/summer 2020 can be seen below.
We stand ready to help guide you through the "carry" scenario as it plays out in the months ahead. In the meantime, contact us with whatever questions you may have as it relates to carry, basis or price.