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Corn 'calls' just in case

01/06/2012 @ 2:53pm

Weather is dominating both Argentina and Brazil crop prospects. Prices have recently responded with positive gains as hot and dry conditions persist. Private estimates are suggesting the Argentine corn crop could be somewhere between 23 and 25 million metric tonnes, compared to the most recent USDA estimate of 29 million. The rally has provided opportunity to price inventory. So, if you made cash sales and want to be long (should South American weather or the USDA Supply and Demand report on January 12 provide more upside for prices), give consideration to purchasing February $7.00 corn calls.

The February corn calls expire on January 27, well beyond the January 12 report, and perhaps gives you enough time to have a better perspective of the South American production. If hot and dry conditions continue, or anticipated rainfall is lighter than expected, prices could resume their uptrend, break overhead resistance and target $7.00 or higher. World supplies remain historically tight. An increased urgency by end users to cover needs, as well as the speculative interest, could rapidly turn corn into a major bull market.

The recent rally may also be viewed as nothing more than an opportunity to lighten up on old crop inventory and make 2012 sales. The key is to have a balance. The ability to retain ownership for what could be the most critical weather yet, and a "huge" report, makes sense. As of this writing, February $7.00 calls are trading at less than 10 cents. Feed buyers should be prepared just in case prices explode. We don't know the odds of a significant rally over the next two to three weeks, though the potential is growing, especially with the driving forces of uncertain southern hemisphere weather and tight supplies. Keep in mind that the last five USDA January reports have caused limit moves.


If you have questions or comments, or would like help implementing strategy, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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