Sugar/Corn Spread: Roll and Add More

Bears Firmly In Control

The IMC blog entered a short position in the May sugar/corn spread on February 13th when the value of one sugar contract closed at a premium of +$3,251.30 over the value of one corn contract.

Early this month, the corn contract finally closed with the premium value.  That hasn’t happened since last June.  We are taking this as confirmation that the expected bear market is firmly intact.  Based on history, we expect to see this spread decline several thousand more dollars before it’s all said and done.

July Sugar Corn spread daily

July Sugar Corn spread daily

Today, we are going to do two things.  First, roll the May contracts to the July contracts.  First Notice Day is just a few days off.

Secondly, we are going to add to the short position.  The spread has been consolidating in a tight range for the last three weeks.  This pattern gives us a low-risk setup to get short on a breakout of the range and risk to the other side of the range.

Trade Strategy:

Buy back the short May sugar contract, sell one July sugar contract short, sell the May corn contract, and simultaneously buy one July corn contract at the market-on-close on Tuesday, April 25th.  Risk the July spread to a two-consecutive day close above +$4,000 (premium sugar). 

 “Add-On” Trade Strategy:

Place a hypothetical contingency order to sell one 112,000 lb. July sugar contract and simultaneously buy one 5,000 bushel July corn contract if the spread closes below the April 5th low of -$436.20 (premium corn).  If filled, liquidate the position on a three-consecutive day close above the April high (currently at +$437.10). 

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