Talk in the market that Brazil is sold out and that the U.S. is priced as the lowest in the world suggest more strong exports for Corn are ahead. July futures surpassed the April high this week and have reached levels not seen since last October. Export Sales this week were strong again. Old crop bested expectations at 1.381 million tons sold while new crop came in at 246,200 tons. Cumulative sales stand at 95.4 percent of the USDA forecast for 15/16 versus a five average of 93.7 percent. The larger demand issue in the market that continues to buoy corn is the worsening situation in South America. Argentine growers harvested just 0.8 percent of their corn over the last week taking the overall completion rate to just 29.1 percent. This is the worst harvest progress since the Buenos Aires exchange started compiling the data. According to the exchange, harvest progress as of late May stand at nearly 70 percent completed. This bodes ill for Brazil which is relying on its neighboring country to make up for the major shortfall in its own supplies thanks to a disappointing safrinha corn harvest after an overzealous export campaign in 2015. The International Grains council cut another 3.6 million tons from the total Brazilian corn output. Exporters have been reported to have over extended themselves on export promises which have led talk of Brazil running out of Corn. This leaves talk of stronger exports of U.S. corn to fill the needs down in South America. Look to buy any dips in the Corn market in the short term as demand should remain strong while the supply side is a wild card as growing season has just begun in the United States.
I look for the corn market to potentially test the $4.00 level on profit taking and a bearish crop progress outlook in the U.S. this week. Should we challenge that level, I propose a call/put ratio to take advantage of any bullish price movements. Therefore should we get a dip in price look to buy the December 4.20 calls while selling 2 Dec Corn 3.50 puts for a purchase price of 4 cents or better. The risk here is the cost of the trade which in cash value is $200.00 plus all commissions and fees and the fact you are short puts. Should the underlying futures contract trade below 3.50 at option expiration, one would be long two futures contracts if exercised.
For those interested I hold a weekly grain webinar each Thursday at 3pm. It is free for anyone who wants to sign up and link for sign up is below. If you cannot attend live a recording will be sent to your email upon signup.
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.
