Grain Spreads: Corn Counting

Sean LuskGeneral Commentary


December corn futures failed to clear the $7.00 level again last week and turned lower. While declining crop estimates and projected tight ending stocks for 2022-23 are in my view supportive, the fact that the combines rolling amid a rising Dollar and falling equities are playing a big roll.  The U.S. dollar pushed to a fresh 20-year high this week while crude oil futures dropped below $80 for the first time since mid-January. Global demand concerns abound as the late to the party Federal reserve has finally started to aggressively raise rates in its fight against inflation. Remember 2008? Corn was trading above the $7.00 level by Mid-Summer, but a major decline in equities due to the mortgage meltdown took corn down to 4.00 by the end of October. I’m not looking at that dramatic of a price drop this year as the fundamentals are different with this recession as it relates to the banks. (They are in better shape in 2022). That said the Fed chair admitted it’s going to get worse before it gets better. Despite corn bullish fundamentals both domestically and globally, the continued rise in rates amid a stronger greenback, may prod the 200K trend and index following funds, to lighten up amid Harvest in the Midwest. Trade idea below. A fifty percent retracement from the July lows at 561 to last week’s highs at 6.99, comes in around 6.30. 

Trade Idea  


Options-Risk Reversal. Buy the December 22 corn 650 put and sell the Dec 22 720 corn call. Bid 3 cents. 



Options-Unlimited risk here as one is naked short a call. Cost to entry is 3 cents or $150.00 plus commissions and fees. I look for harvest type profit taking amid a bearish equity back drop and rising Dollar. Given one’s risk profile, I would risk 10 cents or $500.00 upon entry on this spread plus all commissions and fees. ZCZ22c720: P650

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