CHICAGO: Chicago Board of Trade corn and soybean price spreads reached multi-month highs on Monday as razor thin supplies at country elevators and processors forced traders to cover short positions before May contracts expire.
The front-month Chicago Board of Trade May corn contract rallied to a premium of 57-1/2 cents compared with the July contract, the biggest inverse in the market since Jan. 8. The premium for CBOT May soybeans peaked at $1.44 higher than CBOT July, the highest since Feb. 22.
There have been no deliveries of either commodity during the May futures delivery period which began on April 30, underscoring the tight supply of physical corn and soybeans in the country.
Without the ability to make deliveries, short-covering is the only option for traders who must exit futures positions before expiration at noon CDT (1700 GMT) on Tuesday.
"As long as cash is high, and no deliveries, you just continue to put pressure on the shorts," said Dan Cekander, grain analyst with Newedge USA in Chicago.
Open interest in the expiring contracts has been steadily decreasing but remained at 1,854 for May corn and 2,792 for May soybeans as of Monday's open, providing plenty of fuel for the short-covering rally that hit at the opening bell.
"I don't know how anyone short in May is going to get out other than buy their way out and that could get pretty tense," said Roy Huckabay, executive vice president with the Linn Group, a Chicago brokerage and research firm.
Corn and soybean supplies were tight following a historic drought last year that hurt crop production across the US Midwest.
The US Agriculture Department said last week that corn supplies left over from the reduced harvest would be the smallest since 1996. Domestic soybean supplies at the end of the marketing year were estimated at a nine-year low.
A year ago, with cash market supplies more plentiful, soybean deliveries were 2,584 and open interest in expiring soybeans was just 712 contracts. There were four corn deliveries and open interest stood at 1,349 contracts two days before the May 2012 contract expired.
The tight supplies have keyed gains in the futures market this year.
May soybeans rose 32-3/4 cents, or 2.2 percent, hitting a six-month high on Monday as traders scrambled to cover short positions. CBOT corn surged 30-1/4 cents, or 4.4 percent, to its highest level in more than six weeks.
CBOT May corn was trading at a 62-1/2 cent premium to the July contract, up 29-1/4 cents since the end of April. The premium against the new-crop December contract has risen to $1.78-3/4 even as planting delays have threatened to cut crop yields this fall.
In soybeans, the May contract's premium to July was up 32-3/4 cents this month at $1.01-3/4. Its premium to new-crop November was $3.11-1/4 a bushel.
CBOT May wheat prices have fallen 2.8 percent this month, gaining 1 cent against the July contract but the wheat market remained in a carry as supplies remain plentiful. Deliveries against May wheat have totaled 3,957 so far, affording investors an alternative to unwinding short positions.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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