Commentary
Technical buying from algos and some spread unwinding were two potential reasons corn traded higher today in my opinion. We are hearing a lot of noise made with the extreme rise of fertilizer costs and due to that a potential inflationary bubble is being built in the corn market due to increased future input costs. Those producers who still have corn in the bin unpriced should be encouraged that the recent price break and break near 5.10 was rejected. The buying picked up above the 50 -day moving average today at 5.47 on the weekly continuous chart, seen below for the lead December contract. It’s my opinion that some buy stops were hit when the contract took out the September high on the charts. The December corn hit a high of 563.2 today, just above key trend line resistance this week from the June and August highs coming down the page at 5.62. We need a settle above this trend line in my view to leg up higher, with my upside targets at 5.80 then 6.03. Those areas represent 20 and 25 percent higher on year for corn.
For Producers who don’t have corn priced yet., consider the following trade below. This is a hedge idea for those who have unpriced corn only as it carries unlimited risk. The option skew on the deferred contracts is becoming wider regarding puts versus calls. Funds are still long over 200 K contracts as of the last CFTC report showing them long 211 K. Given the price action since the last reporting period of last Tuesday, I suspect the managed long could be near 240 K. It is my contention that if one stays long this market, one should use old crop contracts, namely the December 21 and March 22 contracts. A couple reasons in my view are that South American production, outside of extreme weather events, should produce a big crop ready late Spring/early Summer. Also China, with a lot of supplies booked and not shipped yet, may not have them shipped prior to the end of the 202½2 marketing year. Potentially the Chinese could cancel our cargoes in favor of available South American supply late Spring of 2022. Its one scenario that could emerge in my view. and concerning China has happened before.
Trade ideas
Futures-N/A
Options-For corn hedgers only, buy the July 22 corn 5.20 put and sell the July 22 7.00 call for even money. This spread settled at a 6.4 cents debit today. I’m suggesting that due to the option skew, that another rally in July 22 corn from today; settle at 5.69 to lets say 5.80 may get the strategy filled at even money or zero cost to entry plus commissions and fees.
Risk/Reward
Futures-N/A
Options-Unlimited risk on this trade. Therefore I suggest this strategy only for producers who are using the strategy to hedge a percentage of their unpriced corn. Cost to entry is even money. Cost is commissions plus fees.
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