On Wednesday, December 10th, the USDA will release its monthly crop report.  Now that harvest has wound down and production is largely known, traders will begin to look at ending inventory, or the amount of grain expected to be left over, come the start of next year’s harvest.

Essentially it is our grain savings account.  A news agency poll of analysts suggests the corn ending inventories will come in over 2-billion bushels, which is up from last year’s report.  This increase comes on several fronts.  One front is the demand side of the market. 

Demand

Even though Thursday’s weekly export-sales report showed 1.170 million metric tons, up 34% from the week prior, these larger numbers have been inconsistent with the export sales falling off in the following weeks.  Demand is running about 3% behind the prior year largely because of minimal Chinese activity to date. 

Trading Positions Held

The second front is the speculative trading funds positions held now exceed 580,000 contracts long, clearly overbought and overexposed for this time of year.  One would assume, though, they could trade higher into following the December 10th report. However it is my view that profit taking should be expected after as there is no other report until January. 

Weather Forecast

The third front is WXRISK.COM’s (the Ag weather site) 30-day forecast predicts December will have much warmer temperatures and lack any major snow falls.  This will keep movement of grain transportation unimpeded.  Last year’s polar vortex froze the Mississippi river, keeping barge shipments of grain from moving to the gulf ports and farmers unwilling to plow out bins to bring grain to market. 

The Trade

I am looking to take a short position in corn to take advantage of a possible move lower following the release of the report.

  • I propose buying the March Corn 370 put for six cents or in cash value $300.00.
  • The risk on the trade is the price paid for the option plus all commission and fees.
  • Due to the extreme long position held by funds in the market, I will be looking for retracements in corn back down to 3.74 and then 3.62 basis March futures. 

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Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 PM CST. Sign Up Now

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.