The blog entered a long position in the December corn/oat spread at ‘even money’ on October 8th and added another at +47 1/2 cents (premium corn) on November 13th.
This week the oat market plunged. The market is off nearly 22% from last month’s peak while the corn market is actually up 22% from last month’s low. This sent the December corn/oat spread to a nearly five-month high of +82 3/4 cents (premium corn) this morning.
The oat market has been the one market that did not participate in this year’s bear market in the grains. It was certainly not for lack of supply. Transportation was the problem. Oat shipments out of Canada (the world’s largest oat exporter) were delayed because record grain and oil seed crops created a shortage of rail cars and bogged the rail system. Now that the backlog has eased, oat shipments are coming in fast and furious and the corn/oat spread is returning to the mean.
First Notice Day for the December grain contracts is on Friday and the markets are closed tomorrow for Thanksgiving. Therefore, long positions need to be rolled over by today’s close to avoid possible delivery notices. The December corn/oat spread has been rising faster than the March spread and has now gained a premium over the March spread. One can now roll to the March contracts with a small premium on the December spread to pay all of the commissions. How cool is that?
When we started the trade, our minimum target was the one-dollar mark (premium corn). This could soon be achieved. We do know, however, that a large majority of the prior declines below the 50-cent level have been followed by rallies to +$1.50 or higher. Therefore, we will assess the situation after the one-dollar level has been reached. If the trend is still bullish, we will continue to stay on for the ride. Depending on the pattern that plays out, we may even look for a low-risk setup to add more to the long March corn/oat spread position in order to take full advantage of the move.
For tracking purposes, the blog will roll the two long December corn/oat spreads (the initial position entered at ‘even money’ and the ‘add-on’ entered at +47 1/2 cents) to the March December corn/oat spreads while the December spread is trading at a premium of +2 cents or more to the March spread. Risk the March spreads to a two-day below the rising 30-day Moving Average.