ALCIVIA Roundtable – Inverse vs. Carry Markets

ALCIVIA Roundtable – Inverted vs. Carry Markets

Hello, Dylan Beaver grain merchandiser here at ALCIVIA this week on ALCIVIA Roundtable we are going to discuss carry market and inverse markets. On the screen you’ll find the CME website and the price of corn for futures months of May forward. In this graph we’re going to talk about difference between some of these last trades. Specifically, we’re going to talk about the term inverse market and what does that mean, why is it important to our producers. As you can see here, we have the May contract for corn of 2023 and then we have the July contract of 2023 and the September contract of 2023. Those are considered old crop marketing months and, in those months, as we progress forward into the year the price becomes less and that’s what we call an inverse market. Where corn today is worth more than it is in the future so with that being said in the current marketing year of 2023 for old crop grains we are in an inverse market where today corn will be worth $6.47 at the Chicago Board of Trade and by the end of the year or the end of this this crop it will converge to be $5.50. So, we do have an opportunity to sell above six-dollar corn as of today and as we progress into the future those days will start to limit as we move to the new crop year.

Below you can see the crop year for new crop grains December of 2023 to March 2024 and then into May 2024. This is what we call a carry market, this is where the market is structured for grains to be worth more later in the defers than they are in the nearby. So, you can see that corn for new crop is worth $5.46 and as we progress throughout the year it gains 10 cents into the next marketing month of March at $5.56 and then it covers us to $5.62 being worth six cents more later. So, the difference between these two markets is understanding when to sell your grains and when is it most important to move it. In this market it’s saying sell it now and move it before we get to the point of where it’s worth less into the new crop markets. December forward store your bushels if you can store them and sell them later. Now the things to remember is cost of carry is not free, so putting your grains in your grain bins at home has a cost to it.

What you put your value onto that cost is what determines how much money you think you need to have to carry those grains. So those are the two differences between an inverse and a carry market you can see that for old crop marketing cycle or currently in the inverse market and for new crop we’ll be in a carry Market to star. We do have the opportunities to change these markets or turn around if the world demand does change these structures of these markets can always flip back and forth as fast as the inverse can go out it can come back to kind of carry as well but always do remember that when you’re in these types of markets market structures space that risk is always something to be paying attention to so with that please take the time to look at the market structures that we’re currently in and how those terms reflect on onto the current structures and then how does that relate to what’s happening in your local markets of demand as well. Because this is this is a national scale when we’re looking at this so it’s very important to bring that back to your local markets as well and then relate that to your cash market, there’s a lot of moving puzzle pieces here to this structure and it’s important that you understand what your value of your grade is in the world economics space versus just looking at what’s happening regionally.

Thanks for joining us on this week’s episode of ALCIVIA round table join ALCIVIA round table next week to discuss the terms bearish and bullish.