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Grain: Re-Ownership Opportunities

Re-Ownership Opportunities versus July 2018 Corn Futures:
 
The chart below shows the price action in July corn futures over the last 3 crop years versus the current market for CN18. The time period is December 1st through June 30th (June 30th represents First Notice Day in July corn futures). Key takeaways are as follows:
 

  1. Downside Risk Parameters (based on July corn futures in 2015, 2016, and 2017)
    • Prior to May 20th…July corn has only closed under $3.60 four times…all in 2016 on 3/31, 4/1, 4/4 and 4/11 (the low close occurred on 3/31 at $3.55 ¾)
    • After May 20th…July corn futures drifted down under $3.50 momentarily in 2015 on a closing basis on 5/27 ($3.49 ½) and 6/15 ($3.48 ¼). The day low was $3.46 ¾ on 6/15.
    • This would suggest (based on the charts) the downside is likely limited to approximately $3.60 from now through May 20th on a closing basis; however the possibility of a break to $3.50 exists after May 20th into July option expiration IF spring and early summer weather isn’t an issue in 2018.

 
Today July 2018 corn futures (CN18) closed at $3.65 ¾. If your goal is to re-own corn on seasonal weakness…attempting to own something in the low $3.60’s versus July corn futures probably carries with it minimal risk (10-cents to the downside) based again on what the charts have shown us the last 3-years. Furthermore, as far as the upside is concerned, last year July 2017 corn futures traded back up over $3.90 on 2/13, 2/15, 2/16, and 2/28. Again this was in February 2017. This after previously making a day low on 12/23/16 of $3.59 ¼. Therefore…this supports the $3.60 buy versus 3.90 sell type trading range. (July 2017 corn futures chart at the bottom)
 
Obviously there are several ways to own corn… long futures, long calls, or short puts. You could also entertain a long call/short put position to offset a percentage of the long call premium. This also reduces your penny for penny risk to the downside compared to buying outright futures. The safest play is to buy an out of the money call and risk the premium. However you won’t generate as much on rallies.
 
If there is something you would like to look at specifically let me know. The best strategy largely depends on personal risk tolerance.
 
Today I bought a $4.00 Call and sold a $3.50 Put in July options and collected ¾-cents. This position has a .57 Delta, which means on a 10-cent higher move I’d theoretically make 5.7-cents. The Delta changes however over time; therefore it’s a position I fully intend to manage daily if necessary.
 
Again let’s discuss on a case by case situation for those interested. Do I think a rally is imminent? No…but in this type of market where rallies shall likely be defined by 30-cents maximum, getting in before the market makes a move will be important.
 
 July-Corn-Chart-(1).PNG
 
JULY 2017 CORN FUTURES:  Market rallied from day low of $3.59 ¼ on 12/23 to a day high of $3.93 ¾ on 2/16

July-Corn-Chart-2017-(1).PNG