Grain Spreads: Buying Dips

Sean Lusk General Commentary Leave a Comment

December 19 corn finished 30 cents higher today from the prior day low while soybeans finished 26 cents higher from the same time period while KC wheat strengthens versus Chicago wheat. Weather and its impact on future yields have the grain markets bid. Corn broke 8 cents yesterday following the USDA 11 am report. 2019/20 ending stocks for corn came in well above trade expectations at just over 2 billion bushels, up a whopping 330 million bushels from June’s report. Global ending stocks were raised 8.4 million metric tons. The USDA again noted that their surveys are way behind normal due to the weather in June and that a more valid or accurate survey will be released in their August report. In my view the market did a collective eye roll and now are focused on weather.

Therefore row crop futures have been the upside leaders as the market builds in additional weather premium to account for the coming heat/dryness for a good portion of the SW and E Midwest. Subsoil moisture is abundant in some areas, but compacted soils is making it difficult for crop root systems to reach the water. So far temperatures have not been extreme which is helping crops to endure the July dryness – so far. But the need for rain builds each dry day. In my opinion I look for the volatility to continue due to weather forecasts. Both European and US models are calling for a more protracted heat dome to hover over the Western Grain belt moving North and East. We will see but the market given the low plantings for corn could be more hyper-sensitive to extreme weather forecasts going forward. Options premiums are getting pricier to the upside so I think the best bang for your buck is futures or spreads. Having said that for a two week bet one could look at buying the 460/490 call spread for 6 cents. Option expiration is 7/26. If one is looking for downside exposure look at the 450/430 put spread for 6 cents as well. 468 for Dec corn is key for me. It represents 20 percent higher on year. If we blow through it I think the market pushes to 491 and then 5.07 which is 30 percent higher. Major support for Dec corn is 434.6, a close under and its 418 and then 404.

Call or email me with any questions or comments. I can be reached at 888 391 7894 or slusk@walshtrading .com I hold a free grain and livestock webinar every Thursday at 3 pm Central. We discuss supply, demand , weather, and the charts. Sign Up Now

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