Commentary
USDA late Monday reported 20% of the U.S. corn crop was harvested as of Sunday, up from 12% a week earlier but slightly behind the 22% average for that date the past five years. The key though and what the trade will be keying on is the next WASDE report out on Wednesday October 12th at 11am Central. Will a short crop get shorter? We have rallied in corn the last three sessions amid a big decline in the US dollar and sizable rally in energies and equities. Do the first two days of the 4th fiscal quarter signal a reversal of trend or dead cat bounce higher? Yield results for corn are variable, better east than west, but that’s been a known in the market. Wheat has had a steady rally vs Corn but gave some back the last few sessions as KC wheat stalls at 10.00 and Chicago wheat at 9.40. How the USDA sees yield and demand down the road have major ramifications for corn’s balance sheet given the tightness in ending stocks and stocks/usage in my opinion. Per Hightower, if yield is reduced 1.4 percent, ending stocks could fall below 900 million bushels. Which in my view if this occurred would raise the potential of price rationing. Report day diagonal option spread strategy to be considered.
Trade Idea
Futures-N/A
Options-Buy the October Week 2 7.00 call and sell the Dec corn 7.60 call for even money.
Risk/Reward.
Futures-N/A
Options-Unlimited risk here as one is short a December 760 call vs a long weekly option that expires on October 14th. This is a volatility play into report. Should we not rally past 7.00 on report day (10/12/22) or by the next days close, we are out. One can put a profit objective at 20 cents. Note-as we enter into the strategy as a spread, we exit as a spread. Call me with questions.
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