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MARKETS:
Corn Spreads to The Edge of Reality UPDATE

Corn calendar spreads are again setting record lows.

SUMMARY

  • Corn calendar spreads made new lows as prices did.
  • The US Corn Belt’s July looks increasingly supportive of higher yields.
  • Add in the extra comfort from Brazil.
  • And some Trade War-related issues.
  • The combination makes weaker spreads the path of least resistance.
  • Most of the natural ends to the trend seem more likely to come in August.

Corn Spreads to The Edge of Reality UPDATE

Corn prices’ very sharp two-day decline resulted in a sharp deepening of corn futures’ contango. That deepening has left calendar spreads at or near record lows, as we expected they might do (see original post).

Weather is the catalyst.

Or, more precisely, the lack of US weather worries.

The US Corn Belt started always-critical July mostly with good or better soil moisture. For that reason, we were bearish about corn spreads. Fast forward to now, and the crop situation looks better. Certainly, US Corn Belt temperatures have been warm-to-hot. But, there has also been useful rain. And forecasts, out to the reliable two-week horizon, look largely similar. Together, that means the US Corn Belt will likely be somewhat akin to greenhouse for about two-thirds of July. That alone is a plus for corn yields. And, in addition, it means the weather risk from the final third of July declines. The combination means that corn prices need not delay their normal seasonal decline.

This current decline, though, will not only be about US corn’s good fortune. While waiting for July, the corn market has added a much larger Brazil corn crop to its forecasts. That extra corn means the season 2025 inventory starting point is well more comfortable (see this Turf War post). That comfort is also now being priced in (again).

The Trade War is unhelpful

Another part of spread’s unusual weakness is perhaps the Trade War. That impact is not because it necessarily results in lower US corn exports. The primary impact is due to the uncertainty about many importers of US corn. At the time of writing (July 9, 2025), US trade deals with the EU, Mexico, Japan, and South Korea are still pending. And the ‘deals’ themselves might have a lot of ‘TBA’, prolonging uncertainty. Best guess for many, Cornucopia included, is that none of those importers will retaliate in a way that cuts imports of US corn. Probability though is obviously not certainty. The stark fact is that we do not know what tariff regime will greet these corn imports at their destination. So that benign expectation can logically co-exist with the physical trade being sensibly wary. We suspect that wariness translates into a requirement for more carry. A requirement that would come from both the supply chain and the consumer. The requirement is partly ‘a bit for luck’. The requirement is partly ‘a bit for luck’. And partly a real, immediate cost. The physical trade, with fewer opportunities to sell forward, faces more extended carry periods.

When is it time to ‘unfriend’ the trend?

A few things, probably in combination, determine timing.

  • The seasonal decline in prices ends, usually in September.
  • Market positioning becomes extreme:
    • Investors already have a large short position, but it is not yet extreme.
    • Investors spread positions, usually short-long, are also large but not yet extreme (see Spread of Spreads).
    • Physical short and spread positions are yet to rise from very low levels. The low level is mostly seasonal, but also likely somewhat Trade War-related.
  • The US dollar has another big fall, transforming US corn’s competitveness.
  • A less-murky trade outlook would likely help spreads rise somewhat.

Of those, the most immediate issue will likely be investors’ short and spread positions reaching extremes. Those extremes though are only the absence of selling. Seasonal lows for prices generally occur closer to September. As does the related physical positioning. However, the nature of season 2025 perhaps suggests an earlier start. What the greenback will do is anyone’s guess. Another drop though might be both catalyst and turbo-charger for physical players.

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