Commentary
Another leg higher for old crop corn, beans, and bean oil as the Ag rally rages on. This push in the last 24 hours in my view comes as Brazil’s Ag ministry suspended import duties on soybeans, corn, bean meal and bean oil until end of the year. It has given thoughts to tight domestic ending stocks there amid a worsening weather situation into month end for second crop corn. Heightened inflation and strong demand added to the bullish tone in my view. Cold weather the next two weeks accompanied by snow and then rain will hamper planting in the Midwest and early emergence in the South. But keep an eye on South America. Brazil’s Safrinha corn crop remains at significant risk, with half of the crop currently under moisture stress, but that could expand over the next couple of weeks as the crop goes through the critical reproductive phase. Meanwhile, heavy rains are hampering the corn harvesting in Argentina. U.S. futures were supported by firming cash corn basis, with prices rising to the highest since August 2013. Before the reopening, USDA announced private exporters sold 114,300 MT of corn to Mexico for old-crop delivery, adding to the tightening supply story. News from China provides another clue that supplies of corn are tight. Heilongjiang province announced that it was bumping up subsidies for corn growing in the region.
Trade Idea
Futures-N/A
Options-Buy the June 21 Corn 6.00 call for 17 cents. Sell the July 21 650 call for 14 cents. Buy the spread at 3 cents.
Risk/Reward
Futures-N/A
Options-the risks on this spread upon entry is $150.00 plus commissions and fees. However, there is unlimited risk should the June 6.00 call options expire worthless on option expiration by 5/21. That would still leave one short the 6.50 July calls. That is a naked short call position with unlimited risk. The game plan is to get long old crop corn at a low cost to entry here. My near-term upside targets have July corn going to 6.03 (25 percent higher on year) and potentially 6.28 (30 percent higher on year). One would also have unlimited risk if one was exercised on the 6.00 call, being long July futures at 6.00 if exercised on May 21.Theres a lot of moving parts here and I advise extreme caution in using this type of strategy.
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