Commentary
I keep hearing that delayed corn planting raises a cautionary flag of higher odds for below-trend yields. Per Pro Farmer, since 1986, there have been seven other years — 1993, 1995, 1999, 2008, 2011, 2013 and 2018 in which the corn planting pace was only single digits completed as of April 24. In five of those years, the national yield finished below trend line. Analysis of yields in those years versus trend line and the percent of the previous average would suggest a drop of around 8 bu. from this year’s trend of 181 bu. per acre. I’m not suggesting an 8 bushel drop, given today’s seed technology, it’s hard to fathom in my view. In fact hope for a strong yield is not lost, as 2018 produced an above-trend line yield after a very slow planting start, where corn was planted into 4th of July weekend that year in many Northern areas. Therefore I wouldn’t be a buyer of Corn on delayed plantings just yet, as there is plenty of time to plant.
What is worrisome to me is the secondary corn crop in Brazil. Brazil’s safrinha corn crop has favorable conditions in far northern and southern production areas. But dryness concerns are mounting in central Brazil. April rainfall in Mato Grosso, Brazil’s top safrinha corn producer, was on track to be around 70% below the 10-year average and the lowest total for the month on record, this has crop consultants so far dropping Brazil’s crop about 6 million metric tons from 116 to 110 million metric tons. The crop has gone through pollination and early grain fill in these trouble spots. With the increased potential of a lower Brazilian crop, a severely reduced Ukrainian corn crop and late plantings in the US Midwest, we could see dips continue to be bought further out. I’m looking at a diagonal option strategy moving forward, as these concerns could add fuel to an already bullish fire.
Trade Ideas
Futures-N/A
Options-Buy the August Corn 8.00 call and sell the September 22 corn 850 call. Offer the spread at – 3 cents. ZCU22C850:Q22C800[DG]
Risk/Reward
Futures-N/A
Options- Both option strikes are bound by the underlying September 22 futures contract. The suggested cost to entry is 3 cents or $150.00 plus commissions and fees. However the cost is not the risk here. The risk is unlimited in this type of spread due to the short option call is one month longer in duration than the long option call. Therefore as we enter into the trade as a spread I would exit as a spread. I’m watching to see if global tightness will bring September futures to the level that May and July are at currently and perhaps even higher. Please call or email me with any questions.
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