Corn bulls were dealt a blow with the results of the quarterly stocks and prospective plantings report released last Tuesday. Stocks up and acreage higher than expected did damage to the story for stocks potentially ending tighter in the 2015-2016 marketing year. Old crop carry-out should be increased in the April report, and there will be more margin-for-error going forward, as far as new crop yields are concerned.

That said, the crop still has to be made and the 166.8 bushel-per-acre national yield is aggressive. There is much debate about where the final planted acreage will end up, but with this number, upside potential becomes more limited.

There was a big reversal in the corn/bean ratio from the lows of 2.25:1 to the high Wednesday at 2.41:1. This trade, and other bullish corn positions, was predicated on the lower acreage assumptions common in the trade. The Dec15/Dec16 spread held its support point of -15 on Wednesday, but we could see a push out to -20, if planting weather looks good, where it would probably be a buy.

Trade Ideas

  1. The bottom line is that it comes down to weather at this point. As for old crop, our bias has been to be bear-spread old crop/new crop, so look to buy Dec sell July at -16, looking for a push out to -22, -23 area.
  2. Or buy Dec/ sell Sept around -8 if it gets there.  We don’t have a strong bias on outright prices as the market is still in a month-long, range trade at this point. Seasonal considerations would argue for the long side, but chasing strength is not the way to go here. I am more inclined to buy dips, as a breakout doesn’t look imminent for a few weeks.
  3. For Option traders I would look at December Corn Strangles to take advantage of either optimal planting and more importantly growing season weather or for adverse summer weather including lasting heart domes and lack of rain.
    1. For upside exposure, I would look at buying one Dec Corn 4.50 call and selling 2 Dec Corn 5.50 calls for nine cents or in cash value $450.00.
    2. For downside protection look at buying one December Corn 3.50 put for 8 cents or in cash value $400.00.
    3. The risk on the option trades is the price paid for the spreads and outright options 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.