Weekly export sales for corn came in at 818 thousand metric tons versus 387 thousand last week and down 10% on the four week average.  There were two surprises on the report. 

One, Japan was absent from the import list.  That is important as they are the largest importer of US corn on a weekly basis.  Due to their shipping proximity and US corn’s current value, we will look for this aberration to correct itself next week with a much higher number. 

Two, the largest importer of the week was an unknown destination, at 374 thousand metric tons.  The trade automatically believes that unknown is China.  This would be the second time in the last three reports that China was active in buying corn.  Though these amounts are just nibbling at their potential, they could turn to buying much bigger amounts quickly. 

There are two issues that lead me to believe that China is going to be a very aggressive buyer of US corn.  First, they are undertaking a massive expansion of their hog and chicken industry to ensure a more protein-rich diet.  They recently approved a previously banned biogenetic seed Syngenta.  This suggests urgency and a need for feed corn.  Export demand for corn is not the only improving news for corn demand, but the latest US hog and pig report shows an increase of 4% of hogs and chicks.  We look for this to improve in the months ahead, suggesting a much bigger feed ration. 

  • We look to use the seasonal January into February break to find a low to get long December corn for a potential rally to 5.05. 

The Trade

  • Keeping with this premise, I would propose buying the Dec Corn $5.00 call and selling the Dec Corn 6.00 call spread for eight cents or in cash value, $400.00.
  • The maximum value one could collect is $5,000.00. That would be only if both strikes finished in the money at option expiration in November.
  • This longer term position trade will offer exposure to the long side of the market until the third week of November. The risk on the trade is the price paid for the option spread plus all commissions and fees.

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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.