The best thing we can say about today is that its Friday and ends a forgettable week for many commodity bulls. The icing on the cake for bearish commodity news was highlighted by the FOMC yesterday as they are staying the course for now with planned rate hikes well into 2019. Of course news and events can enter into the market and alter the Fed game plan, however astute investors usually navigate whats in front of them and for now that’s a stronger Dollar.
After yesterdays surprise decision from the USDA to add China’s reserve census grain stocks from upto ten years ago, world balance sheets came in absurdly huge vs expectations especially for corn. Since China is not a global exporter of either wheat/corn, their excess or reserves have not been previously counted regarding world ending stocks.. They were needlessly added in yesterday’s report and perhaps a final black eye to the US producer for 2018 regarding supply/demand. Not exactly an early Xmas present following this years tariffs and trade war.
US China Ambassador Branstad visited with President Trump, US trade rep. Lighthizer, Treasury Sec Mnuchin, and USDA Sec Perdue yesterday to develop a trade framework that can lead to a deepening negotiation between the US/China ahead of the November 30th G 20 meeting. Perdue’s office issued a statement late Thursday expressing optimism that President Trump’s approach to trade will lead to a settlement of the current US/China trade dispute. The market will be closely following political developments as Trump/Xi talk trade over dinner.
Beans finished the day seven cents higher while meal and oil finished in the red. Beans held major support this week (875)while soymeal hugs a key trendline at (306). Corn meanwhile struggled to gain any traction while wheat fell as KC wheat was down 10 cents, while Chicago fell 5 to 6 cents. Chicago wheat is now at a premium over KC as the spread has pushed out to negative 14.4 cents. The widest this spread has traded in recent memory is 27 cents Chicago over KC in late 2016. Should we notice a bottom here, this would be a nice entry longer term to long KC and short Chicago. I will reexamine near term and would like to see where we stand following the conclusion of the Goldman Roll early next week. It seems like everyone wants to own corn and for good reason as global stocks/usage is a the lowest level in 5 years minus China. (China not a world exporter) plus its cheap all things considered. I’m suspect long term as even if a trade deal gets done with China, we could still see ramifications regarding soy demand. This could lead to increased corn plantings at the expense of beans next year and with good US weather, present the market with another sizable crop. I think the best way to play it then would be near term bullish and long term bearish. The following put forth should be considered especially if one produces or owns corn.
Futures Spread; Bull position: Buy July 19/Dec 19 futures spread at a seven cent carry OB. This spread can trade up to a 25 to 30 cent inversion if southern Hemisphere problems erupt or planting delays and weather hiccups occur during spring/summer in North America.
Options Bear Position: Last few years have seen corn spend little time above the 4.00 handle, by little time I mean a few weeks here, a few weeks there. This year maybe different as Dec 19 might trade above 4.00 for a little longer given lower domestic/global carry-outs amid uncertainty. I think though the following trade idea presents one with a responsible and workable solution for a percentage hedge of future production.
Buy the Dec 19 Corn 4.00 Put for 20 cents. Sell 2 490 calls for 10 cents apiece. Spread cost is even money plus commissions and fees. currently this spread is trading at a 10 cent debit. Look for move up to 4.10 on the futures to get filled at the target premiums for this option ratio. Please call or email me to receive our charts or hear our gameplans. 888 391 7894 or slusk@walshtrading.com . I hold a weekly grain/livestock webinar each Thursday at 3 pm Central time. Signup is free and a recording link will be sent to your email.
