Overnight, December Corn was up 4 ½ cents at $3.64 ¼. There are some frigid temperatures hitting states like North and South Dakota are seeing temperatures in the mid to upper 20’s this morning. That cold air will spread southeast over this weekend and hit all of Iowa, Minnesota, and Illinois, just to name a few states. These are three of the top four corn producing state in the United States. The Minnesota and Illinois corn crops are also some of the most behind schedule corn crops in getting to maturity. A few hours of 29 degree weather in a row can do a lot of damage to non-matured corn. This cold blast starting now and through this weekend is expected to be followed by a bigger blast next week that will bring much colder temperatures all the way down to the Gulf of Mexico. The enclosed chart shows that corn is breaking out of a base that has been forming since July, and could project prices back up to the $4.50 area where prices originally broke down in early June. The directional movement indicators are bullish and the ADX line is rising. Followers of this letter should be long one December Corn from $3.38 ¼ and short one December Corn ($3.40 strike) call option from 19 3/8 cents. We will happily stay with that trade for now.
Yesterday, I recommended trying to buy one December Corn ($4.30 strike) call option for 3 cents, but were unable to get filled. For today, I recommend trying to buy 3 December Corn ($4.30/$4.50 strike) call spreads for 1 ¾ cents. If filled, these spreads will cost $87.50 each, gross. So, three of these will cost $262.50 gross. If we don’t get a price spike to be able to take a good profit, and the options expired worthless, then our total risk on this trade will be $262.50 gross. If prices do spike up to $4.50 or higher, then at expiration our potential profit would be $1000 for each spread, or a total of $3000 gross. I don’t expect prices to go and stay that high, so I would be happy if we triple our money on this trade. It will take a good spike for that to happen as well.
Oct. 8, 2009
David Hall
