Thoughts on the Dec 2019 Corn / Dec 2020 Corn Spread

We received a question from a subscriber on this topic and thought maybe some may find it interesting.

The Dec 2019/Dec 2020 corn spread is right where it should be. The spread has rallied 60 cents since mid-May, while the flat price has rallied 90 cents. One could apply a 0.60-0.70 delta to the spread compared to the flat price.

We think:

  • There will be about 10 million Prevent Plant corn acres.

  • Yield is likely to come in below trend. A 170 yield would be optimistic in our opinion.

  • Export demand is suffering.

  • Ethanol usage should remain stable.

  • Ending stocks estimates seem to coming in near 1.2 to 1.6 billion bushels.

  • Dec 2019/Dec 2020 should stay at an inverse with this scenario.

If yield or acres come down further look to the spread in 2011/12 for comparison:

  • Yield dropped from 158 to 147 throughout the summer, taking ending stocks down to 989 million bushels.

  • The spread went from +20 cents to +$1.00 from early July to September.


In 2012-13 (drought year):

  • The USDA’s ending stocks estimate dropped to 650 million bushels in August from 1.183 billion in July.

  • Yield dropped down to 123 bushels per acre in August report from 146 in July and 166 in June.

  • The spread went from even money in early July to +$1.75 in mid-August.

In our opinion if the trade starts talking about ending stocks at 1.0 billion bushels the spread has a lot more room to run, and the participation of algos could increase the speed and intensity of a move.

Matt ConnellyCorn