With the government coming in back to work— our old friends at the USDA are finally releasing their data for export inspections, export sales, crop progress, and harvested acres.
The first report of any the week is the Weekly Export Inspection Report Monday at 10:00 a.m. central time. Corn inspected for near-term export was 26.5 million bushels vs. 32.3 the week prior, and four week average of 24. It’s normal for demand to pick up at harvest time but the last two weeks was measurable.
CHINA DEMAND?
Traders are wondering if China is coming in to buy corn like they have been buying beans. The thinking has been with talk of better than expected yields, there’s one more new low price to come before China and other importers pile in. This 18 million bushels bought by China is a red flag and China’s buying needs to be watched closely now. It’s cheaper for Chinese corn users to buy U.S. corn than Chinese corn stocks.
There are areas where corn is 6 to 8 dollars per bushel in China. Monday’s 3:00 PM central time crop condition report was our second since September 30. Every key Midwest producer improved. Corn condition was 62% good to excellent condition vs. 55% on September 30. The better condition number will further talk of bigger production increases on the November 8 USDA monthly crop report. Corn and beans have dropped appreciably since the last report Sept. 11. If the November report comes in as bearish as expected, its low price results will be a harvest season low followed by a demand driven market. In my view, with corn demand not yet bullish enough to drive prices up on its own, corn may yet make another new low as the November 8th report gives cause.
BIG CROP REPORT: NOVEMBER 8
Since traders were without the October monthly crop production report to trade off of due to the government shutdown, the November 8 report comes in with added importance and in my view a higher chance of an extreme move for both corn and beans. With essentially two months of data to report on, the government has room to offer the market a surprise.
THE TRADE
To avoid getting caught the wrong way on report day. I propose the following trade. I propose buying the December Corn 4.00 puts and buying the Dec Corn $4.60 calls for a purchase price of 5 cents, or in cash value $250.00. The risk on the trade is the price paid for the Option strangle plus all commissions and fees. I am looking for an extreme move on report day, with at least a 20 cent move up or down due to the increased volatility and importance of this report.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
