Grain Spreads: March 26/May 26 Corn Spread

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Commentary

The corn market can't get out of its own way lately and has certainly been range bound since the January 12^th crop report. This week’s monthly WASDE release dropped ending stocks 100 million bushels as the USDA acknowledges the record demand seen. Near term outlook tells us that the calendar spreads maybe a different story with March26/May26 corn posting record level volumes for the spread contract. Spread volume was 124K. See chart. The spread settled at its largest carry in months and in my view looks like the carry could retest 11 cents March under or make new lows.  Trade ideas below in corn with a four-legged option strategy. In the interim the next big release from the USDA, comes in the form of the Annual Outlook Forum is scheduled for the end of next week. In my view there is a lot of hype about the Forum, with a lot of data released by the agency regarding future crop balance sheets. In my view, most important is how the USDA sees trendline yields for the coming year as those will most likely be what the USDA will use when it releases its first 2026-27 balance sheets in May. From an options perspective I want to sell premium in old crop corn and buy premium in new crop. Gameplan below.

Trade Ideas

Futures-N/A

Options-Sell the July 2026 corn 440 straddle. We are selling the 440 July 26 call and selling the July 26 corn 440 put. Once collects 37 cents upon entry. New Crop Dec 26. Buy the Dec 26 400 put and buy the Dec 26 520 call. for 16 cents. Package both strategies together for a collection of 21 cents.

Risk/Reward

Futures-N/A

Options-the risk here is unlimited as it relates to the short options. One collects 21 cents per spread less commissions and fees if filled at the suggestive prices. The July 26 options expire late June, and we expect them to remain rangebound between 480 and 405 basis July. We are long a December call and put option to strangle the market as this Summers production for the 26/27 is unknown for now. This s just one strategy for corn that we are using. Our goal is to strategize ways to be short in the front contracts and long options in the deferred. 

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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