Grain Spreads: Wheat Gains on Corn

Corn seems to be the weak link in the AG sector as funds in my view have pushed out to a 160 K short. Despite the fact that we are behind in harvest, where as of last weekend corn is only at 76 percent harvested nationally, funds have shrugged any supply side concerns and have focused on weak demand. Cuts in production for corn due to this years weather anomalies will have ramifications for price down the road. Right now its demand leading price lower along with heavy commercial selling. Despite positive basis in the East and Northern growing areas, I believe commercials are taking what they can from the field and selling the Board as hedge. Again my opinion here. Funds have taken notice and are piling on as well. Dec option expiration is Friday and first notice the day before Thanksgiving. March will be top step shortly. Despite some positive trade deals coming with Japan and perhaps a friendlier demand outlook from our number one corn buyer, NAFTA 2.0 still isn't signed and a deal with China seems no closer than we were two months ago. Its ugly out there for now regarding price. Despite the fact that this years crop will be revised lower, where is the demand coming from to push endingf stocks significantly lower? There should be a demand window opening up soon from Dec until March potentially, but will it surpass market expectations? Near term it looks that Dec corn will possibly test 357, which puts March corn at 366/367. Should those levels be achieved, I would look to be a buyer for a bounce. One trade you may consider is to buy the March 380/400 call spread for 4.4. cents. If looking for downside exposure, look to buy the Jan 370 put for 2.6 cents. On can package these trades for 7.2 cents and have exposure on both sides of the corn market.

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