Weekly export sales numbers for corn came in last Thursday (4/14) at 1.135 million metric tons up 20 percent from the week prior. Big U.S. corn buyer Japan was in for 396 thousand, and South Korea 240 thousand, sizable purchases from Asian buyers that account for 70% of our exportable feed grains yearly. Mexico was in for 161 thousand as the four year drought continues there. This kind of sales number last year would have been bullish and rallied the market, but corn held gains late last week. We need 1.5 million metric tons or more consistently to be bullish. The monthly crop report by the USDA came in showing 1.862 billion bushels of corn as ending stocks. Estimates were 1.847. Brazil came in unchanged, Argentina and world numbers were up 1 million tons. Though weekly export numbers are not big enough to rally the market if they consistently come in at this size we can expect the market to see further short covering. China plans to cut planting of corn by 1.65 million acres this year. Argentina is expanding ethanol usage to be 26 percent from 12 percent currently. Dryness in Brazil has them turning to Argentina for near term needs of corn. All of these small friendly bits of news should keep trend following funds to cover some of the 60,000 contracts they are short coming into this week, looking to buy breaks in the market. Non- commercial non reportable funds are short 94,000 contracts; they too will be aggressive short covering.
Those looking for additional long term exposure in the market should consider the following trade. Using an aggressive option strategy I propose buying the Dec Corn 4.50 call while selling 2 Dec Corn 3.40 puts. The cost of the trade is a half cent or in cash value $25.00. The first risk here is to the downside as you are short 2 3.40 puts basis December. Should the market settle below 3.40 at option expiration in late November, the options would be exercised and therefore long two December 16 futures contracts at 3.40. The second risk is the cost of the trade plus 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 anytime 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.
