Feeder/Corn Spread: Roll to 2017 Contracts

Time to Switch

The IMC blog entered a short position in the Nov-Dec feeder/corn (x4) spread at -$2,662.50 (premium corn) on September 6th.  The November feeder contract is about to expire and the First Notice Day for the December corn contract is just a couple of weeks out, so we’re going to roll to the March 2017 contracts right now.

The March feeder/corn (x4) spread made a double top formation back in August and fell to a four-month low by mid-October.  The current three-week rally has now brought it into a technical resistance area at the Fibonacci .382 retracement of the entire decline and the declining 50-day Moving Average.  If you aren’t already short or you’re looking to add to the position, this would be a good place to do it!

march-feeder-corn-x4-spread-daily

March Feeder Corn (x4) spread daily

Don’t forget that we’re looking for the spread to ultimately descend to the -$40k area at a minimum.  This is not a guarantee, of course, but it’s based on decades of price history.  This gives us favorable probabilities.  Therefore, we will be watching closely to see if a low-risk setup materializes to allow us to pyramid the position.

Trade Strategy:

Buy back the short 50,000 lb. November feeder cattle contract and simultaneously sell short a March feeder cattle contract.  Also, sell the four 5,000 bushel December corn contracts and simultaneously buy four 5,000 bushel March corn contracts.  Risk the March feeder/corn (x4) spread to a two-day close above even money.

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