Grain Spreads: Lock in 4.80 Corn

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Commentary

Corn rallied today on multiple fronts today as most grain markets rallied into week and month end and into March deliveries. Today’s strength has largely resulted from fund managers liquidating short positions amid growing global production uncertainties and war premium risk ahead of the weekend. Export sales lagged this week, but we did see a flash sale of demand as 257,000 metric tons sold to an unknown buyer. Could it be China? This week’s flash sales on corn have lessened the negative weekly sales total. Friday’s have become a trigger day in my opinion and in corns case an easy decision by fund managers that are short with profit and carry the most risk. Trave bans and warnings out of in the Middle East were issued by several nations to their citizens within Iran and Israel. China was the most triggering in my opinion with its request that its citizens leave Iran. It’s estimated that Funds covered almost 30K contracts of their corn short going into the weekend and the end of the month. May corn, the most actively traded contract, settled at 4.48 That price level is right where the market was trading just prior to the bearish January crop report.  That said, there has been a wall of resistance at 4.50. We just grew a 17-billion-bushel crop that blew away the prior production record by well over a billion bushels. I have a feeling that there’s millions of bushels sitting in the bin. This rally should it continue allow for those holding the physical uncovered to lock in downside into late Spring/Summer. Don’t let the rally go to waste in my opinion. Old crop hedge idea below.

Trade Idea

Futures-N/A

Options-Buy the July 26 corn 480 put. Sell the July corn 450/480 call spread for even money plus trade costs and fees.

Risk/Reward

Futures-N/A

Options-this three-way option settled today at a 24-cent debit. To get filled at our price (even money) would require about a 15-cent rally in July corn from 4.56 to the low 4. 70s.We are trying to lock in 4.80 July corn to the downside by buying the 480 put and selling a 30-cent wide call spread for even money or same price as the put. If filled at even, the maximum risk is on this trade is 30 cents or $1500.00 plus commissions and fees.

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

312 957 8103

888 391 7894 toll free

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slusk@walshtrading.com

www.walshtrading.com

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