Commentary
Corn’s push higher comes on three fronts today in my view. First, USDA inspected 46.2 million bushels of cornfor export shipment in the week ending May 11th. Inspections bested most expectations in my view as ships destined for China included an impressive 18.6 million bushels of corn. Second, worries about the extension of the Black Sea Corridor. The final two ships under the Black Sea Grain Deal will depart Ukraine on Tuesday. The deal is set to expire on May 18th as a renewal agreement has not been met. Russia has a list of demands before it will agree to the deal according to the Kremlin. The demands involving a reconnection to the SWIFT banking system as well as other protections for its own ag and fertilizer exports. Russia is also demanding a pipeline that carries Russian ammonia to Black Sea ports in Ukraine be restarted. Third, the grains currently have a positive basis in quite a few places. Some areas in Southwest Iowa put the corn basis at 50-65 cents over the spot month and beans are about 15-30 cents over. This makes it hard to be short in the old crop market for now in my opinion. Technically, July 23 corn failed at 6.00 yet again in the near term for the third time in as many weeks. Should we take out 6.00, look for the market to challenge 6.11, then the 6.19/6.22 level. Key support is at 5.84. It needs to hold in my opinion. A close below and it’s a brief stop at 5.77 then support at 5.66 and 5.61. Per Friday’s CFTC data, managed funds were net short 109K futures and options contracts. With the positive basis in many areas especially in the West intact for now, please consider the following trade.
Trade Ideas
Futures-N/A
Options- Buy the July 23 Corn 595 call and at the same time sell the March 24 610 call. Cost to entry even money plus trade costs and fees.
| ZCH24C610:N23C595[DG] |
Risk/Reward
Futures-N/A
Options- there is unlimited risk here, given one is short an option that expires in late February 2024 while long July option expires in 6 weeks. As we enter into this trade as a spread its important that one exit as a spread. Given the positive basis and potential Black Sea shutdown amid a heave net fund short, we could see old crop corn outpace new crop. If filled at even money, our exit to cover is at -25 cents. If thought July 24 corn closes under 5.84, I am out of the whole spread. Call me with questions.
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