Commentary
The corn market is lower as we head into Friday’s USDA WASDE report. Report is scheduled for release at 11:00am Central Time on Friday. The trade expects the first survey-based estimate of the U.S. corn yield to land at 175.5 bushels per acre. Trade estimates range from 172.4 to 178 bushels per acre. 2023/24 ending stocks are expected to be 2.168 billion bushels. This leaves the balance sheet with comfortable supplies next year in my opinion. Estimates of the U.S. soybean yield range from 50.5 to 52.0 bushels per acre with the average trade guess at 51.3 BPA. 2023/24 U.S. soybean ending stocks are expected to decline from the July report from 300 million bushels to an average trade guess of 267 mil bu. Weather for the first half of August has been ideal in most places in the Midwest with rain forecasts verifying with more coverage on the way. Crop conditions for beans and corn should improve as heat in the Midwest has moved out with cooler and wetter the current forecast. For corn, the balance sheet could look burdensome in my view. We have already seen this year’s export target for the 22/23 crop cut by 750 million bushels over the past year, with more cuts likely coming, while new-crop corn sales on the books are a fraction of normal levels for early August. It’s estimated that the USDA export target for 23/24 corn is at 2.1 billion bushels per last months report. But unless demand picks up, the decline in yield will not matter as the lack of demand anywhere from 200 to 300 million bushels could offset production loss. In my view corn needs help to support it. Either beans need to rally either off of weather or good demand or wheat needs to take off given Black Sea/Russian exports concerns. We could see China come back to the demand side of the table quick if this year’s excessive rains in the northeast of China take a significant bite out of its crop, but we don’t have evidence of that being the case yet. Trade idea below, using a diagonal option strategy.
Trade Ideas
Futures-N/A
| Option-Buy the Nov 23 corn 500 put, while selling the Dec 24 corn 580 call for even money or parity plus commissions and fees. ZCZ24C580:X23P500[1-1] |
Risk/Reward
Futures-N/A
Options-Unlimited risk here so caution is warranted especially if one isn’t using this strategy as a hedge. We are essentially trying to finance the November 5.00 put which settled 5 cents in the money per todays close versus selling a Dec 24 corn option that doesn’t expire until late 2024. The value of the 5.00 Nov 23 put at expiration should determine the value of this trade. Will the potential weight of the balance sheet and potential increase in stocks to usage percentage send front month futures lower?
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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