Continuous Charts: Top – Front month to next deferred month Spread Underneath is Front Month continuous
Rule 1: Carry spreads have limits, Inverse spreads have no limits…
In the past 25-30 years we have seen 6 very strong inverted markets. Each inverted market lasted between 3-6 months and often times carried a bullish market reaction. When the inverse disappears, usually the corn market loses it’s bullish strength… None of the above inverses lasted past September. So on one hand history is strong to say that Dec/March spreads should be safe to hold some carry. But on the other hand, inverses have no rules. Risk-Reward: Don’t look to be a hero on Dec/March spreads, waiting to pick up another .05 - .07 of carry may not be worth the risk when there seems to be potential for .20 to 1.00 inverses on the table.
Rule 1: Carry spreads have limits, Inverse spreads have no limits…
In the past 25-30 years we have seen 6 very strong inverted markets. Each inverted market lasted between 3-6 months and often times carried a bullish market reaction. When the inverse disappears, usually the corn market loses it’s bullish strength… None of the above inverses lasted past September. So on one hand history is strong to say that Dec/March spreads should be safe to hold some carry. But on the other hand, inverses have no rules. Risk-Reward: Don’t look to be a hero on Dec/March spreads, waiting to pick up another .05 - .07 of carry may not be worth the risk when there seems to be potential for .20 to 1.00 inverses on the table.
Rule 1: Carry spreads have limits, Inverse spreads have no limits…
In the 70’s and 80’s it was very common to see annual inverses in the spring and summer months. Again, those inverses only last 4-6 months. In most cases it appears that the inverse had done the job of feeding the market the grain it needed and when the inverse backed off into a carry the price of corn came back down with it. Notice the 83’ to 87’ market, very strong inverses for the time, but overall corn market was trending lower….
**Our current inverse began in Jan/Feb. We are in the 4-6 month window of inverses peaking. After the inverse peaks (we will only know this after the fact), it will be a struggle to keep any upward momentum in corn market. Maybe sideways, but most likely lower for sometime….