Grain Spreads: Fertilizer and Corn

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Commentary

Corn pulled back for the 3rd day in a row today as hopes of an Iran deal pushed crude lower late in the session. Today was also June option expiration. Not surprisingly, weekly export sales yesterday morning were very strong as the price dip last week potentially stimulated global buyers and we may see the same thing from this week's pullback. Demand has outperformed all season and remains nearly 5% above the USDA projected pace. In my view I think the strong export pace can continue until Brazil's safrinha crop is harvested. Argentina's harvest is now over 1/3rd done and the Buenos Aries Grain Exchange raised production 3 million tonnes to 64 million, up from USDA at 59. The bulls maybe are hoping for some announcement over the weekend that China and the US have agreed to lower tariffs, raising the odds of China purchasing US corn, and those hopes may keep prices supported today, unless crude oil declines further. Risk reduction ahead of the 3-day weekend is also possible today but longer-term friendly demand fundamentals remain supportive, and any hint of China purchases could cause a swift upside reaction I my opinion. There is still a lot of noise that lack of fertilizer availability this crop year, but I feel that potential headwind will be with the global 2027 food crops, since the war started after much of the needed inventories were in place for Northern Hemisphere crops. We’re likely seeing some reduced application this year, but next year will be the bigger test, should the war continue. Dec 2027 options are available but its early in my view to consider. That said the Dec 27 Board is trading at 497. A 500.0/600.0 Dec 27 call spread settled around 24 cents. If one could pick that up on a price break at let's say 12 to 14 cents value, then I believe it may be worth a shot on a few fronts for a long-term trade. Happy Memorial Day! 

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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