Commentary
Yesterday’s release from USDA showed a larger-than-expected cut to its 2023-24 ending stocks forecast (to 2.111 billion bu.) for corn. In my view it sparked a sparked a bullish response, causing December corn futures to challenge the $5.00 level by the close and the overnight trade. Seasonal patterns suggest the strength might be sustained during October, as we have reached 35 percent harvested. However, the projected carryout above 2.0 billion bushels and a comfortable stocks to usage may cap follow through rallies and could remain an obstacle to sustained gains. USDA kept predicted 2023-24 Brazilian corn production at 129 MMT, whereas Brazil’s Conab forecast the crop at 119.4 MMT. That was also seen as potentially bullish, but I caution while USDA is potentially too high currently at 10 million metric tons more corn than what Brazil is projecting, Argentina is projected to be 20 million metric tons higher in corn production than the year prior. This assumes decent growing weather, but average weather gives the South America increased production year on year.
Todays delayed export sales data slightly bested expectations as they were 700K better than a year ago by coming in at 910K. Sales for futures shipment of US origin corn since the beginning of the marketing year are lower by 7.2 million metric tons (280 million bushels) short of the USDA projections. In my view at least for this week better demand figures were a step in the right direction. Brazil continues to offer the best origin corn for spot in the Western Hemisphere and to some Asian countries. Ukraine undercuts Brazil to all the rest of the world assuming they continue to have the ability to export.
Producers who are holding corn should consider the following trade below. Technical levels for December corn come in as follows for next week. Support is at 4.90. A close under could push the market to 4.82 then 4.74. A close under 4.74 and look out below to 4.62 and possibly 445. Initial resistance is 5.00 then 5.06/07. A close over there and its 5.20 then the gap at 5.25. (see chart) and then major trendline resistance at 5.32.
Trade Ideas
Futures-N/A
Options-Buy the May 24 Corn 5.00 put while at the same time selling the July 24 570 corn call for even money or parity.
Risk/Reward
Futures-N/A
Options-the risk on this is unlimited. Therefore, in my view it should only be used for hedge purposes for those producers who are holding corn. The trade settled at 2 cent debit today, so a rally is needed in corn to get filled at the suggested entry price. Those who participate for speculative purposes should use a stop loss of no more than ten cents from entry which risks $500 plus trade cost and fees.
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