Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.
Beans Rally Overnight, December Corn Drags
Mar 13, 2012
· Grains higher overnight led by nearby soybean contracts, which took a quick breather yesterday; Dec corn struggling to penetrate upside resistance at $5.70
· May corn looking to test early January highs near 6.72; Today would be the 3rd significant up day in a row following Friday’s neutral to negative report and rumors that China has made more US corn purchase
· Argentina’s corn crop is likely to total 21.5-22.0mmt this year, mostly unchanged from 2011, according to sources
· Chinese gov’t not able to sell any soybeans at auction today
· Oil World pegging Brazil soybean output at 68mmt, down from 75mmt last year and USDA’s current projection of 68.5mmt; Oil World projecting Argentina soybean output at 47mmt vs. current USDA estimate of 46.5mmt
· Port workers in Argentina continue their strike, halting movement of about 85 ships
· Brazil soybean harvest 49% complete vs. 38% last week
· Corn planting moving forward in the South; Most Midwest producers plan to plant corn as soon as crop insurance policies will allow
We’ve said it once and we’ll say it again: December corn options are cheap (relative to the last 5 years). The average trading range in corn the last 4-5 years is over $2 per bushel. At-the-money PUT options run between 50 and 55 cents per bushel. Do the math and figure out what makes sense for your operation. At the very least, these options should be purchased on all bushels not covered by crop insurance ahead of the 30th, depending on your policy. If Informa is right, and 95.5mil acres of corn are planted, the options could be a life saver. If not, you’ve still got the corn and have unlimited upside on your cash grain. In many situations, we might advise more complex option strategies; however this time it’s very simple. Take advantage of the low volatility while it’s still there.
As always, call the office with questions or concerns.