Grain Spreads: Lock in $5.00 Corn

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Commentary

December corn has added over 30 cents after the USDA cut yields (and increased exports) last week, with crop ratings and troubling early crop tour numbers adding to concerns this week. U.S. corn condition ratings resumed their decline this week, now down to an even 60% good to excellent. These are two points below the five-year average and well behind 71% on this date last season. No. 1 corn state Iowa continues to hold a impressive ranking at 78% g/ex, unchanged on the week, but that’s now the best of the main states by double-digits. This year’s tour will see the worst of the crop in day one and the best of the crop in days three and four. Managed funds are long over 210K contracts. With an uncertain finish to the crop and escalations still present in the Black Sea, it's unlikely at this moment the funds duck tail and liquidate. The avalanche selling most likely won’t occur in grains until after China comes to DC in late September. Demand remains robust and there’s too many headwinds led by energy currently for a December corn move below pre–August WASDDE lows at 4.57. A pull back to the 4.75 are makes sense near term here as wheat could see a pullback near term from overbought levels amid no supply crunch near term despite all the issues with exports globally. Corn hedges for the producer on maybe a small percentage of production can lock in 5.00 corn in the deferred contracts.  This course of action should be considered in our view given the market has approached key levels of resistance. Hedge idea below.

Corn Producer Hedge. Lock in 5.00 corn. Historically in my view locking in 5.00 corn into harvest has been a good idea.

Buy the March 27 5.00 puts. Sell the March 27 460/500 call spread for even money

Maximum risk is 40 cents or 2k per spread plus commissions and fees.

Margin -$976.00.

The selling of the call spread finances the cost of the long 5.00 put at even money.

The producer is locked in per 5K bushels per spread at 5.00 until late February 2027. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

312 957 8103

888 391 7894 toll free

312 256 0109 fax

slusk@walshtrading.com

www.walshtrading.com

Walsh Trading

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Chicago, Il 60606

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