Earlier this summer, two big price changes occurred in the corn and soybean markets. Combined they have created a “carry” in the market. Here are the two important items as outlined on the University of Illinois Farmdoc Daily website. First, price levels declined, beginning in June and continuing to the present. New-crop corn and soybean futures for delivery during the upcoming fall harvest period both fell by about 20 percent. Joe Janzen, an agricultural economist at the University of Illinois, says the second big change this summer came in the deferred contracts, or those tied to delivery in early 2025.
“So, obviously, the one that I think everyone who follows grain markets is aware of is that prices are lower than they were back in May and June. That’s the first one. But the second thing, and what tends to happen when we move into a lower-price environment is the market tends to reward people for storing grain. It ups the incentives to hold some grain back because the market’s well-supplied in the short run. So, how it does that is by widening out or increasing the spread between delivery at different dates. So, think about delivery next March relative to delivery now at harvest, for example. Those spreads have widened out significantly in the last three to four months both for corn and soybeans.”
The second big change over the same summertime period was the increase in calendar spreads, or the difference between the price for delivery in early 2025 to the fall 2024 harvest-time price.
“The spreads are there just to tell you the tradeoff between bringing grain to the market today, what could you get for that, relative to holding it back and selling it later? And the market is saying, you know, we expect that there’s a little bit more reward now for holding grain back. Because the market is well-supplied, we need to incentivize a little bit more storage going forward through the marketing year to spread that supply out.”
Again, the Illinois ag economist says the explanation for lower prices and larger spreads is straightforward. If the market will be adequately supplied in the near term, then spreads must rise so futures markets may perform one of their principal functions, allocating grain that is abundant now to post-harvest periods where it is less so by incentivizing enough storage. The spread is commonly called the ‘carry’ since it represents the return to the act of ‘carrying’ or storing the grain over time.