Commentary–
Today’s USDA monthly supply and demand report showed the agency’s initial corn crop estimate at 15.278 billion bu., which is 104 million bu. higher than the average pre-report estimate and would be up 1.67 billion bu. from last year. USDA estimated harvested U.S. corn acres at 84.023 million, unchanged from the June estimate. USDA put the national average yield at a record 181.8 bu. per acre, which would be up 14.4 bu. per acre from last year. USDA trimmed old-crop corn carryover by 20 million bu. from July, with a 20-million-bu. increase in estimated 2019-20 corn exports accounting for the slip in carryover. For the 2020-21 marketing year, corn carryover is up 108 million bu. from July, but is 44 million bu. below the average pre-report trade estimate, which was slightly bullish versus expectations in my opinion.
Mondays crop condition report dropped 1 point in the good to excellent category. However it was Monday’s severe storms that began in Eastern Nebraska through Central Iowa into Illinois that have the trade concerned. Massive 100 mph winds termed a Derecho ripped through major corn areas in Iowa and Illinois knocking down stalks and doing major damage to silos and elevator operations. The damage could be as much as 200 to 400 million bushels. This was not factored into today’s numbers and would reduce ending stocks from the USDA’s 2.7 billion bushel carryout to 2.3 billion on the balance sheet. In my view 320 corn is too cheap as ending stocks are a greater unknown now. This storm could be a game changer here especially if demand picks up. I wouldn’t rule out a rally towards the gap at 343.6 and if taken out a move to the 351 area which is ten percent down for the year threshold. Please look at the chart. Under 3.20 and its katy bar the door to the downside in my view. However should we hold that level, I look for the 180K managed money shorts, to get impatient and begin to short cover. They have the profit and therefore the risk. Longer term there is an inflationary play one must consider when talking corn longer term. It’s cheap at these levels in my view as there is more of an unknown now. Buy cheap calls is not a bad idea here.
Trade Idea-
Futures-N/A
Options-Buy the December 20 350 corn call for 5 cents.
Risk/Reward-
Futures-N/A
Options-The risk is the price paid for the option of $250.00 plus commissions and fees. I’m looking for heightened volatility here plus shortcovering that could see the premium on the 350 call rise to 15 cents. Place a sell stop at 2 cents, so the risk is approximately 3 cents or $150.00 plus trade costs and fees.
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