These factors may be the perfect scenario for some traders to want to explore the purchase of debit spreads in December Corn futures options. If a trader is bullish on December Corn, they could consider buying a bull call spread; if bearish, buying a bear put spread might be the ticket. An example of a bullish position would be buying the December Corn 650 calls and selling the December Corn 750 calls. With December Corn futures trading at 611.00 as of this writing, this spread could be bought for about 28 cents, or $1400 per spread, not including commissions. The premium paid would be the maximum potential risk on the trade, which has a potential profit of $5000 minus the premium paid, which would be realized at option expiration in late November should December Corn be trading above 750.00.
Fundamentals
Now that the month of March has begun, traders may want to turn their attention back to the grain markets, as producers focus on their spreadsheets in determining what to plant this coming season as the “battle for acreage 2011″ begins. Currently, the leading contender appears to be the Corn market. New-crop Corn futures trading above $6.00 per bushel compares favorably to current new-crop Soybean prices. The USDA estimates U.S. producers will plant 92 million acres to Corn this season, up just over 4% from last year’s totals. The increased acres given to Corn plantings will be necessary given the USDA’s estimation of tight old-crop corn supplies expected before this year’s harvest. In February, the USDA cut its U.S. Corn stockpiles estimate to a very tight 675 million bushels by the end of August. If accurate, the supplies as a percent of usage would fall to 5%, which is considered by many analysts to be the minimum needed to prevent temporary shortages. Rising world Corn demand, not only for feed usage but for fuel as well, continues to climb, as emerging markets continue to increase their per capita meat consumption, which in turn increases the need for feed for livestock production. Increased ethanol production is also eating into Corn supplies, and current high oil prices may continue to stoke demand for Corn as a fuel source. Although it appears that Corn is winning the acreage battle, traders should pay close attention to mid-range weather forecasts. Any signs of a wetter or colder than normal spring could throw a curve in not only the number of acres planted to Corn, but potentially in the yield per acre if Corn plantings run well behind schedule.
Technical Notes
Looking at the daily chart for December Corn, we notice that after the steady price climb since the end of November of last year, prices seem to be forming a consolidation pattern. This does make some sense as both bulls and bears jockey for position ahead of the USDA’s Prospective Plantings estimate on March 31st. Prices are hovering near the 20-day moving average, but they remain well above the 200-day moving average, which is currently near the 495.00 area. There is a bearish divergence forming in the 14-day RSI, though the overall reading in this indicator remains above the 50 level. Support for December Corn is seen at the recent low of 566.50, with resistance found at the February 22nd high of 623.00
Grains futures traded mixed on the Chicago Board of Trade.
Wheat for May delivery fell 6.75 cents to $8.1025 a bushel
May corn added 4.50 cents to $7.3550 a bushel
May oats were up 8.50 cents to $3.8950 a bushel
while soybeans for May delivery gained 10.50 cents to $13.7525 a bushel.
Beef and pork traded lower or flat on the Chicago Mercantile Exchange.
April live cattle fell 1.50 cent to $1.1140 a pound
March feeder cattle dropped 1.17 cent to $1.2890 a pound
April lean hogs fell 70 cent to 88.10 cents a pound
while March pork bellies were unchanged at $1.1650 a pound. For the latest updates PRESS CTR + D or visit Stock Market news Today
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