Grain Spreads: Bear Spreads Pressure

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Commentary

March prices hitting their lowest level in a month overnight, ahead of 1st notice day for the December contract later this week. Rallies may be tough to extend this week as seasonal weakness is sometimes seen during Thanksgiving week, December longs must exit by Wednesday's close to avoid delivery risk. December25/March 26 corn traded 126K times today. Corn open interest dropped nearly 53,000 contracts on Friday, including and 87,000 contract decline in the December futures. More December liquidation is likely to favor bear spreading this week in my opinion. From a demand standpoint the market looks more promising. Marketing year to date corn export inspections total 688 million bushels, up 288 million bushels or 72% from the previous year's pace. This year's total exceeds the seasonal pace needed to hit USDA's target by 227 million bushels, up from 202 million bushels the previous week as the surplus continues to build. Weekly export sales for the week of October 14 will be released tomorrow morning, and the guesses are 900,000 - 2,500,000 tonnes. It is my opinion that whatever dips in price will be a buying opportunity into the next WASDE report on Dec 9^th. I would suggest one low ball’s a bid below market value for a cheap call option. Trade idea/suggestion below. I think the fear by funds is that the USDA will lower corn yield from 186 down to 184/183 in the next report thereby lowering ending stocks below 2 billion bushels. You combine that possibility with the ongoing record demand and the path of least resistance could be higher.

Trade Ideas

Futures-N/A

Options-Buy the January corn 4.40 call options for 2 cents OB.

Risk/Reward  

Futures-N/A

Options-the risk is the price paid for the options ($100) plus commissions and fees. January corn options expire on Dec 26^th. Place an offer at 12 cents to exit for a gain of 10 cents per option less trade costs and fees. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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