Grain Spreads: Third Time a Charm for Corn?

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Commentary

Corn dropped to new contract lows today, pressured by falling energy prices and the higher dollar. August crude has fallen $30 from its mid-May highs and reached its lowest level since early March. The USDA quarterly stocks and acreage report is still 6 days away and private forecasters are not yet sounding the alarm on the shift in the Midwest weather pattern to hotter and drier conditions since soil moisture is very adequate heading into early July. Furthermore, another shot of significant precipitation is on tap through early next week across Kansas, Missouri and the southern halves of Indiana and Illinois. Greenhouse effect could be seen. Hedgers with unpriced corn can consider the following hedge idea below. Funds are now net short in corn, approximately 70k in the managed money category. and at least for now, don’t have much of a reason to cover given current forecasts. Keep in mind the 2024 growing season low in corn was at 3.85. The 2025 Summer low was 3.92. Both years lows were made by mid-August. Will new crop corn trade under 4.00 for the third year in a row? If so, my target is 3.96 which represents, 10% down on the year. Weather will be the determinant in my opinion.

Trade Idea

Options-Buy the October corn 4.40 puts. Sell the 4.00/4.40 call spread for a 2-cent collection ($100), less trade costs and fees. ZCV26C440:P440:C400[3C]

Risk/Reward

Options-the max risk here if filled at a 2-cent collection is 38 cents or $1900 plus commissions and fees. This trade is designed for a corn producer to lock in protection under 4.40 in corn basis December futures.

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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slusk@walshtrading.com

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