U.S. corn sales last week were 640,000 metric tons, well under the 850,000 or more needed to be bullish. China was in for 130,000 metric tons versus last week 64,000. Talk of early harvest in the southern delta of higher than expected yields has importers sitting on their hands waiting for harvest to begin in the Midwest with harvest low prices yet to come.

HARVEST UNDERWAY

While extremely oversold, continued reports of higher than expected yield suggests that corn prices may need to move low enough to compete on the global market for export share. Corn harvest is now 12 percent complete, compared to 7 percent last week and 52 percent last year. December corn closed 12 ½ cents lower on the session on Monday, and another 2 and ¾ cents lower Tuesday which was the lowest level since September 2010 following the release of the quarterly grain stocks report.

UDSA DATA

The USDA report was considered bearish with September 1 stocks at 824 million bushels compared with trade expectations near 681 million. Along with the government data, continued bearish fundamentals include, excellent weather for harvest over this past weekend along with ideas that the northern Iowa/Minnesota/Dakotas crops have been spared any freeze damage. Also going forward warm forecasts on the horizon and expectations of a record corn harvest were all factors of a market that will soon see new lows in my view.

ON THE CHART

On the monthly chart, the next area of strong support is down near the 418-420 level. There are three reasons though that corn could rally if the market holds the 418-420 level. The first in demand is still high, above the five-year average, with importers coming into the U.S. to continue to fill their needs especially if prices move into the low $4 range. Second farmers and producers could look to sell beans at their historically high cash prices and use those funds to start buying corn while we are at or near three year lows. Third last week’s COT report showed a record high net short position from speculators in corn.

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TRADE IDEA

I am proposing that if corn pushes the 420 level and holds that one could look at purchasing the December Corn 450 call for a purchase price of 5.5 cents, or in cash value a $275.00 risk. The risk on the trade is the price paid for the call and all commissions and fees. I am looking for a post harvest bounce as at least in my view; corn will be in high demand as to what will be seen as a discounted price level.

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.