Export sales for corn came in last week at 1.095 million metric tons. This was a measurable increase from the week prior. The largest buyers were Mexico at 303 thousand metric tons and an unknown destination at 380 thousand. Traders will assume that unknown is China. China has moved in to sell their corn to end users and then is expected to repurchase on the world market. Chinese end users can only buy from government warehouses at government inflated prices.
The government then goes into the world market and buys corn at value. The unknown is important as regular buyers from Asia are in for small amounts like South Korea in for 125 thousand and Japan at 66 thousand. This is a big number and suggests that demand may have turned the corner. The bearish news is Argentina has lifted their tax on corn export sales bringing it to zero. They have an estimated 20 million metric tons excess for sale. DDG is cheaper as a byproduct of corn and U.S. exports are running at 37% of the government forecast versus the five year average of 55%. Some of this bearish news is offset by ethanol consumption and drought in South America. Corn has not made a new low in five weeks leaving a potential turn up in demand as possible incentive for funds to cover part of their massive short position. Trend following funds are short 139,000 contracts, non-reportable funds are short 41,000. Look for these funds fat with profit, tired of waiting for a break and begin short covering.
With possible short covering in mind, I propose the following trade. I propose buying the Dec 2016 470 call while selling one December 16 570 call for seven cents or in cash value, $350.00. This is a traditional call spread that leaves the trader with upside exposure should weather and its impact on future yields affect a rise in the underlying futures contract. The risk on the trade is the price paid for the spread plus all commissions and fees.
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 any time 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.
