Grain Spreads: Balance Sheet Possibilities

Sean Lusk General Commentary Leave a Comment


Big report Friday as the USDA will incorporate planted and harvested acres along with supply and demand estimates. The big number for me overall is where they see carry-out or ending stocks. More times then not in the last 15 years, the USDA has increased yield in its September report. Per Reuters today, A huge downside surprise for U.S Corn yield has not happened in September since at least 2004. Yield has come in below the trade guess only four times since then, the biggest margin being a bushel below trade expectations. For soybeans, Reuters noted that USDA’s Sept. U.S. soybean yield came in 0.6 (BPA) below the trade in 2004 and 0.5 below in 2007. But that number has come in higher than expectations every year since 2012.  Last month the USDA pegged Corn at 174.6 bushels per acre with beans pegged at 50.0. 
The average trade guess into Friday’s report has ending stocks for beans comes in at 190 million bushels vs 155 last month. Ending stocks for corn are seen at 1.382 million bushels versus 1.242 last month. The average trade guesses therefore are coming in higher as August rains potentially benefited both crops with modest increases seen in yield. So, in a sense bearish data versus last month is starting to get priced in the market combined  with harvest and seasonal pressure that could be emerging as funds liquidate or roll positions ahead of Friday’s report. Since last week’s highs, corn has fallen 50 cents, while beans are down over 65 cents.  In my opinion, unless yields are raised significantly or there is a big adjustment or increase to harvested acres, the contrarian view in my opinion is that any report day surprise would come in as friendly or bullish versus expectations. I’m not saying this is going to be the case but if one is looking for a volatility play into Friday’s report, I’m suggesting two option spread trades that one could consider. 

Trade Ideas



Corn-Buy the Oct 21 Corn 550 call and Sell the Nov 21 Corn 6.00 call. Bid at even money.

Beans-Buy the Oct 21 1350 soybean call and  Sell the November Soybean 21 1450 call for even money.




For both strategies the suggested price of buying the spreads at even money means the cost to entry is zero aside from commissions and fees. There is an unlimited amount of risk here should the October calls expire worthless leaving the remainder of both spreads , the short November calls naked. That is the risk and exposure in the market. That said, this is a volatility play into what I consider an important report given the amount of data the USDA is releasing. I’m out of these positions or spreads by nest Tuesdays close at the latest. One can put a stop loss at -6 cents from entry risking $300.00 per spread plus all commissions and fees. 

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Sean Lusk

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