The latest weekly crop condition ratings update for Corn showed that 69 percent of the crop came in good to excellent condition unchanged on the week and down from 73% last year. The ten year average for this time of year comes in at 58 percent. Recent crop tours, a 20 to30 percent drop in Argentinean planted acreage, and lower than expected EU yield estimates have been all factors that have provided near term support. In my view the trade remains convinced that the USDA overstated corn yield in the August report and therefore expects it to become the highest of the season.
The Pro Farmer crop tour this week estimated yield at 164.3 bushels per acre compared to the USDA at 168.8. Here are some of the results. Indiana 147 bushels per acre versus 153 a year ago. Nebraska 165 versus 187. Illinois 171 versus 197 and Iowa 149 versus 180 bushels per acre. The accuracy of the tour is not the key but the fear it puts in the market place that lower yields and production lay ahead. The July rally from 3.66 to 4.56 has been washed out with last week’s drop following the August crop report that had futures dropping below 3.60, with basis December corn futures closing at 3.68. Assuming we get a slight decrease in yields on the September crop report, the mindset is that lower yields lie ahead on the October report. Weather uncertainty and fear that the September 11th crop report will show lower yields may put a solid floor on the market. Harvest will be underway late September and demand from end users like feeders, exporters, and ethanol producers will be supporting cash prices and futures.
Those looking for a position trade to the upside may consider the following position trade using options. For a longer term position trade I propose buying the March 2016 440 call option while selling two of the March 2016 Corn 510 calls for 4.4 cents or in cash value $225.00. The risks on the trade are the cost of the options plus all commissions and fees. Another risk here is that by shorting the extra 510 call, there is the possibility to incur a short futures position if all options finish in the money at option expiration. Keep in mind in this specific scenario, one would collect $3500.00 before commissions and fees as the long 440 call and one of the short 510 calls would exercise against each other collecting 70 cents.
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at anytime at slusk@walshtrading.com
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.
