Overnight, March Corn was up 3 ¼ cents at $3.88 ¼.  The included chart shows that March Corn is putting a severe test on the long futures funds where important support is in the $3.70 area.  So far the lows have held.  There is a monthly crop report tomorrow morning that shed some more light on the corn crop.  The rumor now is that any corn that hasn’t been harvested yet may just be left in the fields to be harvested in the Spring.  Who knows what type of quality that will be?  The directional movement indicators are bearish and the ADX line is moving sideways.

Currently we have a combination position on in Corn.  We own the March Corn 1*2 ratio call spread between $4.30 and $4.90 of which we paid 2 ½ cents to enter, or $125 gross cost.  We also are naked short the March Corn $3.20 put option of which we originally took in a credit of 6 ½ cents or a $325 gross credit.  My concern is that if the important lows in the $3.70 area come out and the futures funds liquidate their long positions, then prices could fall back towards the contract lows in the $3.20 area.  If we could buy back the short $3.20 call for 3 cents then we would realize a 3 ½ cent gain or $175 gross.  Then we would have that risk off the table and be left with the ratio call spread that cost us 2 ½ cents up front.  If March corn prices never made it back to $4.30, then the ratio call spread would expire worthless and the overall result would be +$175 – $125 = $50 gross gain.  So we would still be in the game if prices rallied up towards $4.90 and basically break even if prices stay down.  So, I recommend attempting to buy back the short March Corn $3.20 put option today at 3 cents.

 Followers of this letter should be short 1 March Corn ($3.20 strike) put option from 6 ½ cents, and long one March Corn ($4.30 strike) call option from 17 ¼ cents and short 2 March Corn ($4.90 strike) call options at 7 3/8 cents each.  There are 72 days left until March options expire.

With all the price tests above $4.00 recently,  I would hope that the producers have already liquidated most if not all of their corn that needs to be sold.

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.