Commentary:
The bullish inputs for corn keep coming this week and we are only two days into the week. The bullish news in my opinion comes on two fronts. First, yesterdays Covid 19 vaccine news from Pfizer propelled the stock market to record highs while sending crude oil futures three dollars higher, with todays close pushing it comfortably above $40.00 a barrel. Higher energy prices aids corn as it gives thoughts to more bushels going into ethanol into 2021. This comes as travel and leisure sectors received a much needed boost yesterday on the vaccine news as a potential treatment is seen as a possible game changer to get more people to resume air travel/cruises and vacations and get people back driving to work. That is the assumption for increased consumption for now in my opinion.
Second, todays surprise yield cut for corn had yield falling to 175.8 bushels per acre, from as average trade guess of 177.6 BPA. This spurred a call to drop production by 215 million bushels. USDA raised its China’s corn import estimate to 13 million metric tons (MMT) or 512 million bushels, up from 7.0 (MMT) previously . That boosted U.S. exports by 325 million, while feed usage fell by 75 million bushels. The national average cash price for the year was raised 40 cents to $4.00 per bushel. Ending stocks fell to 1.7 billion bushels from an average trade guess of just over 2 billion bushels. Given higher corn prices in China and South America, the potential for higher prices domestically increases given the government data.
In my view, traders will be hyper sensitive to further Chinese demand moving forward along with South American weather events amid the current La Nina. Note: the USDA attaché in China has China importing up to a potential 22 million metric tons in the current crop year as supplies there have been depleted. If hot and dry conditions remains in South America deep into December, look out for higher prices in my view. I think a realistic price target near term sits at the 4.64/65 area. That price represents 20 percent higher for the year for corn and a 40 percent rally from the Spring lows at 3.10. It also nears last years high at 4.68. To trade near 5.00 in my view we would need to see China ramp up purchases coupled with hot and dry conditions to persist in Brazil and Argentina. A close over 4.48 per the monthly chart below and I think we trade to the 4.65/4.70 area.
Trade Ideas
Futures-N/A
Options-Buy the Feb corn 450/480 call spread for 6.4 cents. These options expire in late January. This is just one idea to get long, not THE idea.
–Risk/Reward– the cost and risk is $325.00 plus commissions and fees. One could collect 30 cents on this trade if the underlying futures contract (ZCH21) settles above 4.80 in late Janaury at option expiration. One would collect 30 cents or $1500.00 should that occur.
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