July Corn has continued trading between support of 3.60 and resistance of 3.70 as we push ahead with planting now at 75% complete. Not yet allowing the market to think about building a weather premium in the mix. Corn awaited yesterday’s monthly crop production supply demand report. However it was a yawner as the numbers came in within expectations. Getting it out of the way without any surprises will allow the market to refocus on weather and emergence of the crop being the most important pricing factor. Pre-report trade estimates are generally bearish for carry over.Because the numbers came in as expected we could see selling push July corn down to 348.0 support. This area would be good pricing to be a buyer and I look for the market to build a weather premium in reflecting the uncertainty of the growing season, because that is all that lies ahead is that uncertainty. Though it’s a la Niña weather year which should bring good weather conditions to the Midwest and upper plains, the weather patterns over our vast growing areas are sporadic as it’s always too hot here and not enough rain over there, an uneven growing season.
Strategy
I therefore propose looking at buying the Dec15 corn / and selling the Dec16 corn futures spread. We have been watching this trade which made a low of 24 ¾ cent carry last week, an area we think will have value on a risk reward basis at this point in the growing season. We are also watching the movement in the U.S. dollar as it relates to broad based commodity trading as commodities as an asset class are getting some attention as having made a major low. That, along with large short positions (particularly in corn and wheat) and the timing in the crop year, sets the market up for a short covering rally. For that to happen, the market needs a spark or a threat to production which is currently lacking, until then markets chop with a downward bias but it feels a little oversold. Look to then buy the Dec 15/Dec16 futures spread at negative 26 with a protective stop loss at negative 38, risking 12 cents plus all commissions and fees. A solid growing season retracement could eventually take us to parity.
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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.
Related Reading: Two Ways Wheat Can Go
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.
