Commentary: Old Crop/New Crop corn and soybean spreads reversed course today as sellers turned active in front month contracts. July20/Nov20 beans fell 2 cents today to settle at 5.4 cent carry from a weekly high of a 1 cent carry. July/Dec corn traded upto a 1 cent inversion this week but fell 2.2 cents today to trade back to a carry at 2.2 under. Despite decent export sales of corn into Japan and South Korea this week and the fact that China has secured 3-5 cargoes of US sorghum and 80-100,000 MTs of DDG’s for summer shipment, grains couldn’t sustain any rally. It has been reported by industry sources that no US corn, soybeans or wheat has been sought. Private exporters also note that there are 2.5-3.5 MMTs of corn TRQ’s open for China to take corn.
In my view the Black Swan event for 2020 is the Covit-19 virus. The mass exodus out of equities and to a greater extent crude oil and gas is hurting Corn via future ethanol demand. In fact front month contracts across livestock, grains, energies, have seen the brunt of the selling in my view. Its one reason why these old/crop new crop spreads sold off today and it maybe just the beginning. With the reduction in global commerce as the virus spreads, the fear of a major reduction in near term demand for anything is the fear.Crude Oil has dropped $15.00 a barrel since 2/20. Rallies in old crop corn, beans, wheat, and meal have all seen heavy selling this week.
In my view it will take just one person to scream fire in the theater regarding a pathway to a cure for COVID-19 that could reverse sentiment and the price destruction in commodities and equities. It is my opinion that the weakness in demand globally for commodities near term as countries and continents eat up their own food reserves is only going to be met with increased demand longer term. That’s just my thought here.
Trade Suggestion(s): In keeping with the a bullish longer term view in Corn for instance. Consider this position. Sell the Dec corn 450/400 put spread for 40 cents.
Risk/Reward: the risk here is 10 cents plus commissions and fees. The max loss is 50 cents or $2500.00. But we are collecting 40 cents or $2000.00 minus commissions and fees right off the bat.We are selling this spread at a 80 percent threshold where the remaining 20 percent is the risk. I like these static longs in the long term. Please call or email me with questions.
Please join me each and every Thursday at 3pm for a free grain and livestock webinar. We discuss supply, demand, weather and the charts. Signup is free and a recording link will be sent upon signup. Sign Up Now
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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