Commentary
We haven’t seen consistently strong demand for U.S. corn as one may have previously thought. Given that China cancelled another old crop purchase yesterday. Their third cancellation in as many weeks. With export inspections down 35% year on year, yesterday’s cancellation gave more thoughts at least for yesterday that more could be coming in my opinion. Apparently, prices have come down enough to uncover some buying in my opinion given today’s price action. It was all about the calendar spreads today for corn spreads with July 23/Sep23 posting monster volume at 47K cars traded amid record highs for July 23/Sep 23 Corn. The spread traded as high as 75 cents in inverse today. (See chart) A feared repeat of the blow up in the May23/July 23 corn that took that spread from a January low of 4 cents May 23 over to 65 cents May 23 over last week is maybe being projected upon the next spread. There is context here in my opinion as the big Brazilian secondary corn crop harvest is still 45 to 60 days away and Ukrainian supplies are increasingly in doubt as talks to continue exports are at a stalemate through the Black Sea. There could be another potential squeeze, trade idea below.
Trade Ideas.
Futures-N/A
Options-Buy the June 590 corn call. Sell the Sep 23 5.90 corn call. Bid even money.
ZCU23C590:M23C590[HO]
Risk/Reward
Futures-N/A
Options-We are buying a serial option of the July contract that expires on 5/26, but is 4 cents in the money. We are selling a Sep 23 corn call at 70 cents out of the money, with a late August expiration.
There is unlimited risk here on two fronts. First, if the June option which is underlying the July 23 futures, is over 5.90 at expiration on 5/26, one would be long a July futures contract. Secondly, if the June option expires worthless, one is naked short a Sep call. That said, if filled at even money, I am looking to offset and liquidate at -20 cents. Which would collect 1K per spread minus trade costs and fees. Given ones risk parameters, I am refraining from entering a stop loss at this point. The gameplan is for funds to play short squeeze amid decreased supplies currently, vs the potential for Brazilian harvest to press global basis levels amid weak US demand come July. Call me with questions.
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