Commentary
Corn’s upside momentum stalled as July futures posted the first weekly decline in over a month. In my opinion, weakness in part may reflect China’s lack of early-May buying after it purchased more than 4.5 million metric tons of U.S. corn in April. But bullish fundamentals remain intact in my view, we could extend higher from here on a few fronts. First, even with warmer and drier conditions expected across the Midwest next week, planting will remain behind schedule as it stands currently. But keep in mind the planting progress can improve in a hurry should the window remain open. What is concerning moving forward in my view is the planting situation in the Northern Plains. North Dakota and parts of Minnesota are experiencing one of their wettest springs on record, creating problems for farmers trying to plant crops in that region. Unfortunately, the wet pattern is expected to continue over the next two weeks, even as things warm up and dry out over much of the rest of the Corn belt. Secondly, dryness stressing Brazil’s secondary corn crop. The safrinha corn crop in central Brazil continues to be negatively impacted by the early onset of the annual dry season. Some of these areas have not received a significant rain for 30 to 50 days according to crop scouts in South America. Also of note is the potential USDA Supply and Demand release on Thursday, that could further cut the corn balance sheet which possibly could propel another surge toward record highs in nearby futures.
Trade Idea
Futures-N/A
Options-Using a diagonal option strategy, buy the August 2022 770 call and sell the Sep 2022 820 call for 3 cents.
Risk/Reward
Futures-N/A
Options-this strategy has unlimited risk. Cost to entry is 3 cents or $150.00 plus all commissions and fees. The unlimited risk comes as you are long an August call and short a September 22 call. The short option has a later expiration date, and therefore would be a naked option should the August expire worthless. Therefore as one enters into the trade as a spread, one should exit as a spread prior to August expiration on July 22nd. Please call me with questions.
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Sean Lusk
Vice President Commercial Hedging Division
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