Commentary
Russia continued their attacks on grain terminals and infrastructure across Ukraine for the 4th night in a row since declining to extend the Black Sea corridor deal last Sunday. There is hope by some officials that seem to be holding out hope for a resumption of the Black Sea export deal. That said, with major exporting hubs like Odessa potentially in ruins, it may not matter. Ukraine though will use the Danube River, rail, and truck to move grain, so there are alternatives, if need be, that will continue to be used. For Corn we are in key yield development time, conditions are getting better in areas of need, but more rains are needed. Harvest is not that far off, less than 2 months away in major producing areas so there is time for another weather induced rally. Demand though for new crop is anemic so far. Should weather cooperate, we can return to the early July lows quickly in my opinion. From a demand standpoint, the last two crop seasons saw China purchase 8.8 and 8.4 million metric tons of U.S. Corn respectively. Year to date (22/23) Chinese imports of U.S. corn total 4.7 million metric tons with less than 0.2 million metric tons on the books for the remainder of the current marketing year and less than 0.3 million metric tons of new crop (23/24) on the books to this point. That has to change in my view, or the USDA will be hard pressed to lower ending stocks from the current 2.26 billion bushel carry out. In my view should demand disappoint, it may not matter if they eventually lower yield from 177.5 (BPA) in July to let’s say 174 to 175 bushels per acre by the September WASDE release. We saw the same mindset from USDA in soybeans, on one hand they lowered planted acres in a bullish report day surprise from 87 million to 83 million on the June 30th acreage report. Then two weeks later they cut demand by 150 million bushels due to lagging new crop sales offsetting the acreage drop potentially. We could see the same with corn. Drop yield to 174 from 177.5 BPA but cut demand to offset production losses. Meanwhile China has been quiet this week regarding the shutting down of the Black Sea. They imported 5.26 million metric tons of corn from Ukraine last year, with year-to-date shipments at 4.3 million metric tons. Ukraine was traditionally a major supplier of corn to China, which would buy from the United States to supplement its needs when Ukrainian supplies ran short. Now China depends heavily on Brazilian supplies, with a new phytosanitary agreement expected to lead to increased imports from Argentina as well in the years to come. Year to date corn shipments from Brazil to China total 2.2 million metric tons, but China is expected to receive roughly 2 million mt per month from Brazil July through September. With a lack of demand and decent finishing weather, please consider the following option risk reversal trade below.
Trade Ideas
Futures-N/A
Options-Risk Reversal using 2 different months. Buy the December Corn 520 put while selling the Dec 24 corn 620 call for even money. ZCZ24C620:Z23P520[1-1
Risk/Reward
Futures-N/A
Options-There is unlimited risk here, and it’s a hedge strategy. Given one’s risk parameters, I would risk 12 cents from parity if filled at even money, which risks approximately 12 cents or $600.00 from entry plus commissions and fees.
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