CME Group announced late Tuesday it will increase the storage costs for any deliveries against futures next year from 5 cents a month to 8 cents a month starting in December 2019 for corn and November for soybeans. The commercial trade has been arguing that the higher variable storage rate in wheat futures was leading to higher returns for storing wheat than corn or soybeans, leading to an inefficient use of grain storage capacity and sending the wrong market message.
Futures contracts are temporary substitutes for cash commodities and eventually they mature and turn into cash commodities at delivery.
The Chicago futures markets reacted quickly today with the December 2019 corn futures falling to a 13 1/2 discount to March 2020 futures from 10 cents on Tuesday and 8 3/4 cents a month ago. For comparison, December 2018 corn futures discount to March 2019 futures has been widening the past month from 9 1/2 cents to as much as 12 cents today on larger crop potential in the U.S. When the premium the deferred futures trade to the nearby futures is widening, the market is signaling greater supplies and demanding a premium to store the crops.
In soybeans, the November 2019 futures discount to January 2020 futures widened to 9 ¾ cents from 6 ¾ cents yesterday. That’s up from 5 3/4 cents a month ago. November 2018 futures discount to January 2019 futures is 10 1/4 cents today, up from 9 3/4 cents Tuesday, and the lowest ever for the contracts A month ago the discount was 7 1/4 cents.
When spreads narrow or nearby contracts trade at premiums to deferred futures that is a sign demand is stronger for immediate supplies. That is true now in soybean meal futures where front months are above deferred futures, a sign that supplies are tightening amid growing global demand. The head of China’s state grain trader COFCO said today the U.S.-China trade spat will lead to more imports non-U.S. soybeans and other oilseeds and more protein meals to make up for the tariffs. Remember, the biggest shipper of soybeans meal, Argentina, just harvested a soybean crop that is 36% smaller than a year ago.