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Commentary
Ending stocks were pegged last month at 1.415 billion bushels for old crop corn. The current sales figure for future shipment is currently 165 million bushels over the USDA estimate, of 2.6 billion bushels. Current sales pace should it sustain for 24/25 sales, would put old crop exports at 2.765 billion bushels.
Question I have is, will the USDA acknowledge the consistent aggressive sales numbers for future shipment and increase their export number that could possibly decrease ending stocks for old crop corn down from 1.415 to the low 1.3-billion-bushel area? The 2.6 billion export program is second largest in US history. Should ending stocks get reduced 75 to 100 million bushels in next Thursday’s report, old crop corn may become too cheap, despite a big secondary corn crop to be harvested soon in World # 2 grower Brazil. From a demand standpoint the USDA here can give the corn market some support. From a supply side standpoint, the recent trend for spot corn in particular continues to lag near lows as spec fund money keeps the pressure on in my opinion. July25/Dec25 corn futures spread broke 44 cents approximately from late April until this AM. The December contract looked a bit more friendly but that may be due to the unwinding of the old crop/new crop spread. Up until now, there hasn’t been a weather premium, with new-crop fundamentals weighing overall thanks to mostly ideal U.S. growing-season weather so far and a forecast that keeps bringing new rounds of beneficial rains to the Midwest and Plains. However, we could see a major weather shift the last two weeks of June. Traders are keeping a watchful eye on forecasts in the last half of June, which look to bring heat into the Western Corn Belt. Managed money is short per CFTC 150K corn. That’s a big, short position in my opinion heading into the most important key yield development time of year in July.
Trade Ideas
Futures-N/A
Options-Buy the August Corn 420 call (off the September futures contract) and sell the March 26 corn 5.20/460 put spread for a collection of 18 cents upon entry less trade costs and fees.
Risk/Reward
Futures-N/A
Options-the strategy contains two bullish strategies. First, one is an outright corn August 420 call, which currently is 12 cents in the money. Second, one is short a March 26 520 vs 460 put spread that doesn’t expire until late February of next year. The maximum risk is 42 cents plus commissions and fees. I suggest risking no more than 10 cents or $500 plus commissions and fees. Once collects $900 or 18 cents upon entry. My projection that if the funds cover, old crop September corn can trade back to 4.60 from 4.32 while new crop March 26 can rally to 4.90 from 4.64. . Should this happen I project we can exit the trade with a 15 cent collection on exit for a total gain of 33 cents minus trade costs and fees. The goal is to collect upon entry and exit. Initial margin here is $1188 per three-way option.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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312 256 0109 fax
Walsh Trading
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Chicago, Il 60606
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.