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Commentary
USDA’s 4 percentage point drop in the good to excellent categories reflected the impact of hot and dry weather in the western Corn Belt and gave futures a mild bump early in the week. However, forecasts calling for more rainfall than expected in early August put a damper on the weather rally this week. Upper Plains and western WCB areas of the US that have been the most affected by the hot and dry pattern are not unsalvageable on the whole, and it’s that prospect in my opinion that is causing speculative liquidation. It’s estimated that close to 50K contracts of corn have been sold back from the Managed Money funds since Monday. While condition ratings are not a perfect predictor of the initial yield forecast, markets will closely eye Monday’s Crop Progress report for clues to what USDA will release in the initial yield forecast on August 12. As heat moderates here, an expansive heat dome emerges over the EU again. In my view it wasn’t a surprise to see the European Commission cut their corn production estimate by 8 million metric tons drawing production down to 51.9 million metric tons (MMT). They also raised their estimate for imports by 4.9MMT to now sit at 24.0 MMT. Multiple weather sites are in agreement that a major heat wave is coming for the EU, with plenty of chances for record high temps not just in top corn producer France but central/SE Europe as well. Not much rain is forecasted with the heat wave. I wouldn’t be surprised if USDA is forced to make further cuts to their current 53.77 MMT production estimate and increases to their 22.5 MMT imports in the months ahead. We not only have the WASDE August 12th but a plethora of crop surveys by crop scouts, brokerages, etc. starting next week.
Trade Ideas-
Options-I see this market as range bound into harvest. I don’t see it dropping below 4.20 and conversely, I don’t see it rallying above 5.00.
Therefore, sell the December corn 460 Straddle for 42 cents. Patience is required here and a stop loss is encouraged. Place a GTC stop at 52 risking 10 cents from entry or $500 plus commissions and fees. Work an order to buy back the straddle at 10 cents for a gain of 32 cents, less trade costs and fees.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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