Grain Spreads: Lock in $5.00 Corn

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Commentary

USDA surprised the trade today with very bearish numbers across the board. A notable jump in yields to 181.2 bushels/acre, up from a 177.7 estimate and 178.5 last month, combined with a 282-million-bushel increase in ending stocks from last month triggered a price landslide post-report, with December hitting limit down. This disparity in my view forced managed money that was long well over 300K contracts post report to begin liquidating an estimated 75K contracts of their long today. There will be a lot of noise in the trade refuting these numbers, considering the trade lost three points in the good to excellent category this past Monday, as the corn crop came in at a seasonal low of just 54% good to excellent. However, it’s important to note that the market will trade the numbers given by USDA until new data points are given.  Watch for further liquidations on rallies as harvest advances. Those who are uncovered with unpriced bushels can still lock in $5.00 corn and at the same time lock in a long for next year’s crop. Trade idea below using option strangles that are bearish near term while bullish long term should be considered. 

Trade Idea 

Use Feb 2027 options and buy the Feb 2027 $5.00 puts for 22 cents. (Bearish)

Sell the Dec 2027, 6.00/5.30, put spread for 52 cents. (Bullish)

Per 5K bushels or one spread-collect 30 cents or $1500 upon entry, less trade costs and fees.

The maximum risk here at a 30-cent collection, is 40 cents or 2K per spread plus commissions and fees. 

Margin -$876.00

ZCZ27P600:530:G27P500[1-1-1]

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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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