Narrowing futures spreads

By Jon Scheve, Superior Feed Ingredients, LLC 

Many U.S. farmers are not selling grain at current low prices. The reason might be because so many farmers have a breakeven for the 2023 corn crop above $5. It seems likely the farmer does not want to sell corn at cash values below $4.50 before they plant next year’s crop.

This has contributed to the May/July corn futures spread narrowing from a 14-cent carry two weeks ago to a 9-cent carry this week. The reason the spread would narrow is because there is demand from the export market for cash corn along the Mississippi and Illinois river when farmer selling is light.

That spread change may mean little to farmers, but to those who profit from storing grain, it is more than a 30% drop in potential revenue over the next two months. Additionally, the basis has had at least a 10-cent increase in the western Corn Belt over the last few weeks. The eastern corn belt has also increased 5 cents. End users and grain buyers use basis to control the flow of grain into their facility, so this increase in basis suggests supply to end users has slowed.

What happens now?

The narrowing of the spread is encouraging commercial elevators to sell their stored grain on basis contracts now while the farmers are planting instead of waiting for summertime shipment. Combine this with basis increasing because end users are short on supply, and you have a potential solution to the lack of farmer selling.

Will futures rally?

It is hard to say right now because futures are global, and basis is local. There isn’t a shortage of corn in the world. Even in the US the carryout is around 2 billion bushels, and historically any time the carryout has been this big, futures have eventually traded below $4.

There are some weather issues throughout the U.S. that are likely keeping farmers from rushing out to sell grain at a loss:

  • Eastern Corn Belt — farmers can’t plant due to rain.
  • Northern Corn Belt — farmers can’t plant because it’s too cold.
  • Southwestern Corn Belt — third year in a row of persistent dry weather.

If all these weather issues continue, the possibility of a big futures rally increases, but that won’t be known for another month. Historically, having major weather issues that have a big impact on futures prices doesn’t happen as often as many believe. 

I’m not expecting a lot of farmers to sell in any meaningful way without a 20-cent price increase or probably July, whichever comes first. 

So, prices will go up?

Not necessarily. Usually if the spread narrows and the basis rallies the futures will increase as well. However, some farmers likely have corn sold against the May contract. That means these farmers need to either price it by the end of the month or roll the sales against the July contract to give them another two months for a price rally to occur before eventually pricing their grain. 

If enough farmers need an increase in cash flow and choose to price a lot of corn in the next two weeks, futures could decrease and maybe take the May contract to the lows posted a couple months ago, which are about 20 cents below current trading levels.


Basis and spread values indicate farmers are focused on planting and not selling. Farmers likely continue to wait for better prices or until they see that their crop is planted and looking good in the field before selling at low prices. The futures do not have to rally because the spread and basis could encourage the elevators to move grain when the farmer is not.

Please email with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

Check Also

Weather driving global markets

By Doug Tenney, Leist Mercantile Weather. It was THE price driver for grains as the …

Leave a Reply

Your email address will not be published. Required fields are marked *