Commentary
It is my belief that Corn rallied today following the announcement of a flash export sale to China in the amount of 612K metric tonnes. This the largest flash corn sale to China since last April. This purchase may coincide with recent US corn values that are the cheapest in the Western Hemisphere currently, a recent change and the first time since the Spring of 2022. Brazil has not much to offer at this point considering their secondary corn crop is being planted now and their secondary corn planting represents at least 70 percent of their exportable supply. This and Argentine offers are at a premium due to crop loss due to drought there and nonexistent farmer selling farmer selling. The Buenos Aires Grain Exchange has the crop pegged at 5% good to excellent, down from 20% just a month ago. Extended dryness and hot weather have continued to erode soil conditions, making the “best case” scenario worse and worse. The Ukraine offers remain cheaper than US values, but maximum logistical capacity remains a concern despite today’s 60-day extension of the Black Sea pathway deal. I attached a July23/Dec23 corn spread. The spread has fallen in recent weeks from near 80 cents July 23 over down to 44 cents July over. A close over near-term resistance at 52 cents July23 over is needed sooner than later in my opinion to push the spread higher mid Feb highs. No trade recs yet on this one. That said, I’m looking to buy at the money May calls, while selling deferred new crop options against. Trade idea below.
Trade Idea
Futures-N/A
Options-Buy the May corn 625 call and sell the Dec 23 680 call for 3 cents cost to entry plus trade costs and fees. Current futures May corn 620. Dec futures 5.58. ZCZ23C680:ZCK23C625
Risk/Reward
Futures-N/A
Options-The risk here is unlimited so be careful. As we enter into the position as a spread, we must exit as a spread. The short option downs expire until late November, while the long call expires in 6 weeks approximately. It is my contention that May 23 corn could see a rally back to the 645 area and if that level gets taken out rally back to 660. That puts our long call at least 20 cents in the money and possibly 35 cents should the market rally. This is a gamma play where the delta on the long option soars in value versus the short option that is still most likely deep out of the money given the time value of the December option. In any event one can put a stop loss at 4 cents over, risking 7 cents plus all commissions and fees.
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