2017 Corn and Soybean Futures Spread

One of my favorite trades is a 2 corn vs 1 soybean spread. However, we don’t enter this spread for the current contract year and always use the first new crop contracts (i.e. dec for corn and nov for soybeans). For example, we would right now buy two 2017 Dec corn contracts and sell one 2017 Nov Soybeans contract. Here is a quick overview of our rules to trading this spread:

  1. Only enter the new crop contracts for the next year
  2. Don’t enter the spread after December (i.e. somewhat covered by #1)
  3. Aim to exit the spread no later than April
  4. Sell the spread at 180 or above and buy it at 40 or below (soybean contract minus the 2 corn contracts).

The reason I like this spread so much is that it doesn’t deal with the current growing season in the US. It really comes down to simple economics. When one commodity has a significant value over the other, farmers are going to shift planting intentions to the higher value commodity. The spread typically gets skewed from the current crop until it starts to separate in the winter months.

We typically start small and build the position every 40 cents. The spread has the potential to move well beyond our entry points. You’ll see examples of the movement as I move through the contracts from 2001 up to the current year. Also, note that when the spread goes very low or high that it tends to shoot back the other direction faster and further. The current year is very high so it’ll be interesting to see if moves $7,000+ like in 2015.

Also, note that when I say buying the spread it is buying the soybean contract and selling the two corn contracts. It would be the opposite for the selling.

2001 Corn vs. Soybean Spread

With a first entry around 40, a second at 0, and a third at -40, the average of the three would have yielded approximately $2,000 a contract.

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2002 Corn vs. Soybean Spread

Another low year in 2002, but the April exit would have been around a $500-$1000 profit. Even better with a second position added but the first entry might not have been high enough to get the second.

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2003 Corn vs. Soybean Spread

The last year that the spread stayed in the lower end of the range, but a sub 40 entry would have worked nicely.

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2004 Corn vs. Soybean Spread

This is the contract year that corn started to gain on the spread and put it into higher territory. Anything below 40 would have worked well.

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2005 Corn vs. Soybean Spread

No entry for this year going off of our targets and cut off date.

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2006 Corn vs. Soybean Spread

No entry this year.

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2007 Corn vs. Soybean Spread

A potential profit of approximately $1,000 per contract with an entry at 40 and a second at 0.

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2008 Corn vs. Soybean Spread

Another good entry on the bottom end below 40. The volume would likely be very thin this far out but possible with some patience.

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2009 Corn vs. Soybean Spread

A sub 40 entry in both September and December would have been capable of $1,000+ per contract.

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2010 Corn vs. Soybean Spread

The 2010 contracts had good potential for both buying the spread at 40 or below and selling it multiple times at 180 or above.

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2011 Corn vs. Soybean Spread

The only entry this year would have been selling at 180 right before the end of the year.

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2012 Corn vs. Soybean Spread

There were two solid entry possibilities below 40 in 2012.

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2013 Corn vs. Soybean Spread

There was one entry possible on the low side in July/August to take it from 40 higher.

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2014 Corn vs. Soybean Spread

There were a couple times the spread came close to an entry but nothing for sure in the 2014 contracts.

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2015 Corn vs. Soybean Spread

The 2015 contracts saw new highs from this far out. Soybeans were at a much higher value. An entry at 180, 220, and 260 would have been a $2,000 a contract potential profit at a 160 exit.

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2016 Corn vs. Soybean Spread

No entries this year.

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2017 Corn vs. Soybean Spread

And that brings us to the current year where the current spread is at a remarkable 260. Informa is already expected this to create a major shift from corn to soybean acres in the US. Also of note is the seasonal shift from US soybean exports to South America. The South American exports right now are substantially cheaper with a strong US Dollar and a declining Real.

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This trade is bit more complex than a standard spread so feel free to call me for clarification: 281-229-4816

tyler@cybersprout.net

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