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Commentary
USDA pegged September 1 corn stocks at 1.532 billion bushels, exceeding the average trade guess by nearly 200 million bushels. Simply put it’s another black eye for the corn producer as todays on farm stocks number follows two straight WASDE reports where the USDA significantly raised harvested acreage. Despite the historic tendency for USDA to come in below the average guess recently, that was not the case today. Quarterly stocks were above even the highest estimate and can be considered bearish in my view because it alters the balance sheet. Even if yield is revised by 2 bushels per acre lower into harvest, USDA can still keep ending stocks at or above a 2 billion bushel carry through next year, as they magically found an extra 200 million bushels laying around. That will pressure Dec, March and May corn futures in the near term as supply now should exceed demand unless something bullish enters into the market. The USDA cited that 2024 corn production was revised up 25 million bushels, and planted area was revised slightly higher as well. Strong demand and very competitive US prices have supported corn prices despite weak soybean and wheat prices. With stocks now higher than expected and a record crop coming home, bearish headwinds maybe very strong, at least until harvest is 50% complete in my opinion. For corn producers looking for protection into year end, consider the following hedge into year end.
Trade Idea
Futures-N/A
Options-Buy the January 26 corn 430 puts while selling the 4.00/4.30 call spread. Collect 10 cents or $500 upon entry minus trade costs and fees.
Risk/Reward
Futures-N/A
Options-The maximum risk is 20 cents or 1K plus all commissions and fees. I look for March corn to potentially test the low 4.00/4.05 levels through harvest as deliveries, storage concerns, and weakness in wheat and beans provide added pressure in my opinion.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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