Commentary
Sideways grain markets that were very choppy with small ranges were the story in today’s lackluster session. There is a tremendous amount of debate amid the trade with this year’s unusual weather pattern in the Midwest. The trade is pricing in cuts to production and yield from last month’s WASDE report. But how aggressive will these cuts be and will they eat into the balance sheet? New crop corn sales are off to a very slow start versus ten-year averages while corn feed usage estimates are likely too high in my opinion, considering contraction in hog and cattle herds which lowers feed usage moving forward. The trade is going to get a good sample size of what this crop is or isn’t regarding Tuesdays WASDE report results. It is my belief that the trade will need to see a sizable cut in yield below the average trade guess of 173.5 bushels per acre to rally as there isn’t much reason for USDA to increase demand amid weak sales for future shipment levels to date. Or corn has to be led higher by a substantial rally in beans or wheat. Aside from an extreme weather event entering into the market like a extended early frost or derecho that wreaks havoc on a major producing State, I think one should be using rallies as a selling opportunity. Corn ending stocks are projected to be 2.14 billion bushels down slightly from 2.2 billion last month. Over 2 billion bushels is an ample carry-out in my view. Consider the following option idea below. For the week December 23 corn gained 2.2 cents while November 23 beans lost 6.2 cents.
Trade Ideas
Futures-N/A
Options-Buy the Dec Corn 485 put while selling the May 550 corn call for even money.
| ZCK24C550:Z23P485[1-1] |
Risk/Reward
Futures-N/A
Options-Unlimited risk here as one is naked short a 550 May 24 call. We are looking for corn to break down into harvest with prices falling to the 440/450 area given ending stocks are at a comfortable 2 billion bushels amid weak demand. On can use a stop loss at ten cents over for protection into report or be out on a close above 5.06 in the December contract. Call me with Questions.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
312 957 8103
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312 256 0109 fax
Walsh Trading
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Chicago, Il 60604