Grain Spreads: Corn/Bean Ideas, Speculative and Hedge

Sean LuskGeneral Commentary

The last two Fridays saw firm closes to end the week as traders were reluctant to go home short ahead of the weekend. While good to excellent conditions on the last two Monday condition reports leave us with more questions than answers, beans and corn have corrected. This comes on thoughts that weather has improved enough in most growing areas giving thoughts that the worst maybe behind us. Warm days, occasional rains, no lasting heat domes..etc…Problem with this premise longer term is that the weather through August will need to remain optimal because pollination for corn and pod setting for beans is pushed back due to late plantings. Secondly how much of each crop was actually planted and how many acres of each went to prevent plant? The range for corn for instance for prevent plant acres is anywhere from 4 million acres less than the June 28th report of 91.9 million acres to 15 to 20 million less. A huge range that probably won’t be fully known until January. Conditions for soybeans came in at 54 percent good to excellent yesterday, unchanged on the week with the poor/very poor unchanged at 12 percent. Corn came in 57 percent good to excellent down 1 point on the week, with poor/very poor at 13 percent, up 1 percent. These reports are subjective and can change for the better or worse in a New York minute. in my view funds are long 150 K corn, and short about 50 K in beans going into today. If one is looking to establish a long corn position for a position trade, please consider the following.

Long term Bull Strategy Corn: March 2020 options: Buy the 440/520 March 2020 corn call spread for 20 cents. Sell the March 440 put and buy the March 400 put spread and collect 20 cents. Cost to entry is even money minus commissions and fees.

Speculative Strategy Corn: Buy the Dec 19 Corn 450/500 call spread for 9 cents. Sell the Sep 19 Corn 420/400 put spread for 8 cents. Cost is 1 cent plus commissions and fees. Risk is 20 cents. Max collection is 50 cents. minus commissions and fees. Two different months here where the risk being short a Sep put spread expires in late August, if we can hold 420 to the downside.

Hedge strategy : Use Dec 19 options. Buy the Dec 420 put and bid 18 cents. Sell 2 Dec 19 530 calls for 9 cents apiece. Cost to entry is even money minus commissions and fees. (Dec 19 futures need to rally to 440 near term to buy and sell at these levels in my opinion.)

Bull Strategy Soybeans: Sell the October 19 880/840 put spread for 12 cents. Buy the Nov 19 940/1040 call spread for 14 cents. Cost is 2 cents plus commission and fees. Risk is 40 cents. Max collection is $1.00 minus commissions and fees.

Hedge Strategy Soybeans: Buy the Nov 19 880 puts for 18 cents. Sell the 2 of the Nov 19 1020 calls for 9 cents apiece. Cost to entry is even money minus commissions and fees. Nov Beans have to trade above 912-914 o get filled at the proposed premiums.

In my view I would wait as close as possible to the August 12th crop report to put on the corn/bean hedge trades as its my opinion the grain market wont have a deeper correction until more is known from the USDA on 8/12. Again my opinion here. Note: Secretaries Lighthizer and Mnuchin go to Shanghai on Monday to begin three days of talks with China. While we should take a “Won’t Get Fooled Again” type attitude for anything meaningful to come from these talks regarding future Chinese AG demand, the market could react to a bullish surprise here. We also have the Fed meeting next week with the expectation for a interest rate cut. It wont be surprising to me to see volatility increase across the commodity board the next few weeks. Lots of noise and releases the next three weeks.Please join me every Thursday at 3 pm Central time for a free grain and livestock webinar. Signup is free and a recording link will be sent to your email. We discuss supply, demand, weather, charts, and speculative/hedge ideas. Sign Up Now