Corn gains for the month of February are marginal at 25 cents. Most of the gains came from short covering. Trend following funds were short 142 thousand contracts three weeks ago and now just above 30 thousand. This leaves some longs with profits to take them due to month end profit taking. Should we get some month end balancing I am looking for corn to not break below 4.50 basis May futures. The USDA AG Forum Outlook, which gives thoughts prior to the March 28th planting intention report, suggested corn acres to be planted at 92 million acres vs. 95.4 last year. This will support corn into the March 10 USDA monthly crop report and the March 28 report on planted acreage. The perception will be acreage cuts will be greater March 28th, and we will get the third consecutive monthly decline in ending stocks on the March 10th report.
Wheat gains of 50¢ this month continued off light buying by speculators and short covering. The three week’s prior, trend following funds were short 196 thousand contracts and entering this week just 80 thousand short. The buying and short covering all comes as traders don’t want to be short going into March when wheat breaks dormancy and speculators are buying off anticipation that the drought in the western wheat states will continue. Crop conditions are very low and will challenge the crop to find near perfect weather to catch up. Look for month end profit taking that could take May futures down to a low of $6.00.
I therefore am proposing two trades one in futures and one in options. If May corn futures trade back down to the 4.50 -4.52 level, look to go long futures at this level to eventually challenge the longer term 4.70-4.75 level. A good to cancel stop loss should be entered under 4.40 for downside projection. If we see a pullback to the aforementioned level in May Wheat, I would propose going long the May 6.40 call for ten cents or in cash value $500.00. . The risk on the trade is the price paid for the option plus all commissions and fees.
For those interested Walsh Trading is holding our weekly grain webinar series this Thursday February 27th at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup. Link for registration is below.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.