Commentary
The trade gets its first look at 23/24 ending stocks for corn, wheat, and beans on Wednesday at 11am Central time. The eye opener for me is the average ending stock trade guess for corn. It is coming in at 2.094 billion bushels. The range of guesstimates is from 1.7 billion to 2.4 billion. Big range. First number above 2 billion we have seen in the last few crop years. The increase comes on a few fronts. First, increased plantings at 91 to 92 planted acres and yield estimates at 181 to 182 bushels per acre put total US production at just above 15 billion bushels. When we have had ending stocks this high in years past, $5.00 corn was a pipe dream, and rallies above $4.00 usually became selling opportunities in my opinion. Currently new crop December corn sits at 5.30. However, we have a long way to go finish planting to realize the increase in planted acres, aside from growing season uncertainties. With a projected EL Nino summer forecasted, it marks a departure from La Nina which is hotter and drier in the Midwest. El Nino is usually associated with cooler and wetter forecast runs in the Midwest. Keeping this in mind makes me think a corn producer may consider the following hedge using an option risk reversal. Should weather hiccups be at a minimum and no major supply disruption emerge, I would consider the following hedge.
Trade Ideas
Futures-N/A
Options-Buy the March 24 4.90 put and sell the March 24 620 call. Work to sell the spread at even money. It settled at a 1.4 cent debit today.
| ZCH24C620:P490[RR] |
Risk/Reward
Futures-N/A
Options- there is unlimited risk here. Therefore, I would only suggest this course of action/strategy for a hedger, (Farmer). One is locking in 4.90 corn per 5K bushels. We are shorting the 6.20 call to finance the cost of the put.
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