Commentary
Corn rallied 5 cents today reversing Friday’s losses and giving thoughts to a continuing technical recovery that could be the trend into Friday’s supply demand report from USDA. China has been largely absent from buying US corn the last 18 months or so but demand from other customers especially Mexico remains strong. Marketing year to date corn export inspections to all destinations totals 812 million bushels, up 208 million bushels or 35% from the previous year’s pace, and up 27 million bushels from the seasonal pace needed to hit USDA’s target. The US demand window is open for the next couple months which could be supportive, but any long-lasting rallies above let’s say 4.50 May 24 corn look ultimately like selling opportunities in my opinion should that level be retested. I believe we have a lot of old crop corn unprotected still that has to be moved or rolled. Without a weather market in South America, I’m not seeing how sustainable an old crop corn rally above 20 cents is unless something major unforeseen enters in the market and creates a massive amount of short covering from the 295K managed shorts. I have a bullish diagonal corn strategy below, to capture any potential bullish move.
Trade Idea
Futures-N/A
Options-Buy the May 24 corn 430 call and sell the Sep 24 510 call for even money.
Risk/Reward
Futures-N/A
Options -Unlimited risk here as one is short a September corn option that expires late August versus a long call that expires in late April. Or if one has unpriced old crop may not mind being short the 510 calls until he/she moves their corn. The cost to entry for the trade is even money plus trade costs and fees. The key here is we are financing the at the money call in May with the deferred September call option. Work to cover the spread at 15 cents Sep under May. ZCU24C510:K24C430[DG]
If futures close below 4.24 after Friday’s report or next week, exit the position. Support needs to be defended for this trade to work. Weekly continuous chart below.
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