Widening Old Crop / New Crop Corn Spread


The July – December corn spread is in an intermediate-term uptrend. In the corn market, this spread is known as the old crop / new crop spread.

Corn has been inverted — meaning the near months are higher than the deferred months. That screams of delivery. The market is penalizing storage, and you can see that in the chart. The December contract is about 80 cents below July, or about $4,000 per contract.

If the difference between the contracts were positive – a carry charge market – you’d expect the market to encourage storage if there were ample supplies of corn in the near term. That is not the case now.

Although volatile, the spread has been widening (getting more positive). When you think this is going to occur, you are inclined to purchase the spread. In corn, that is done by purchasing the deferred month of the spread (December) and selling the front month (July) against it. The July contracts expire on July 14.

For some perspective, that small leg down at the very end of the chart that is approaching the trend line was about a $750 pull back in the spread.


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