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Grain Spreads: Post WASDE Gameplan
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Commentary
Well, Well, Well. The USDA surprises again with a yield below 180 for corn, coming in at 179.6. The States with the biggest declines month on month were Illinois down 8 bushels per acre at 200, Michigan down 10 from 190 to 180, Indiana and Missouri down 5 apiece, while Nebraska down 4 from 188 to 184 BPA. The only gainers month on month were Minnesota up 10 and Pennsylvania up 2 points. On the demand side of the ledger, USDA cut U.S. corn feed & residual and exports by 25 million bushels each, leading to an overall cut in ending stocks of 91 million bushels, putting 2026/27 ending stocks at 1.758 billion bushels, sharply below the average trade estimate of a modest decline to 1.840 billion. I think this report raises more questions than gives answers. Remember a few weeks back USDA announced they erred in Nebraska’s yield, saying it was understated in the October WASDE. Apparently, it was overstated given Nebraska’s decline. The 2nd largest corn producer Illinois dropping 8 points isn’t helping either. Funds in corn flipped a 431K long in early September, to get short 29K last week. Today's price action put them back with a light net long in my opinion. Two things to watch moving forward. First, the market will be watching any news out of the Black Sea. Reps from Russia, Ukraine, and the US are meeting in Abu Dhabi and conclude tomorrow. Watching for a potential Black Sea truce announcement. If we can get past that with just an agreement to talk more, I think corn and meal go bid and are a buy at present levels. Beans rallied 40 cents today; on the fact the USDA didn’t raise yield above the whisper number of 54 BPA. Ending stocks were the most bullish input coming in at 300 million bushels vs trade expectations of 332 million. Make no mistake, the balance sheet for soybeans isn’t exactly bullish, it was just todays numbers weren’t as bearish as feared. Combined with the fact that Trump and Xi are meeting later this month again, I see no reason at present that funds are going to liquidate further in the near term. Meal has dropped 20% in value in the last six weeks, corn dropped back to unchanged on the year, from 25 percent higher in early September. Trade ideas for below as I see both markets are a buy.
Corn
Buy the Feb corn 460 calls. Sell the Feb corn 490/460 put spread. Collect 5 cents upon entry.
ZCG27C460:P460:490[3P]
Collect 5 cents from entry or $250.00 less commissions and fees.
Max risk is $1250 at option expiration plus all trade costs and fees.
Margin $849.00
Meal.
Buy the January Soymeal 330 call.
Sell the January meal 340/330 put spread.
Collect 1 point or $100 upon entry less commissions and fees.
Maximum risk is $900 plus trade costs and fees.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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