Overnight, December Corn was down 4 ¾ cents at $3.74 ¾. The enclosed chart shows that December Corn had a strong ten cent rally off the correction lows yesterday. The correction lows came very close to both the 40 and 90 day exponential moving averages that come in around the $3.62 area. Just as in the case with many other commodities, it seems that the direction of the dollar is what controls the movement of these commodities regardless of their own fundamentals. Corn, for example, has many worried that the crop is in much worse shape than most realize, yet prices have corrected down by 12% over the past week because of a slightly strengthening dollar. The dollar fell sharply yesterday, so most commodities including corn rallied. The truth about the corn market won’t be known until farmers can get into their fields and resume harvest again. But with all the recent rains, it may still be a week or two before we hear anything. The rumor is that the un-harvested corn crop has some major problems. We will soon find out. The directional movement indicators are still bullish but the ADX line is meandering lower. The break out of the base that was built between July and September suggests that prices could eventually reach the $4.50 area. We certainly shouldn’t see the lows again since everyone agrees that there has been some widespread damage to the crop that will cause yields to decline from what was expected back in September. For now, I am content to hold on to our existing positions. I may want to add to our new March positions if the corn market shows some more strength. Stay tuned.
Followers of this letter should be long 3 December Corn ($4.30 strike) calls from 4 1/8 cents and short 3 December Corn ($4.50 strike) call options from 2 3/8 cents. There are 21 days left until the December options expiration.
Also, you 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 112 days left until March options expire.
Producers should have up to 75% of their crops hedged with put option strategies or 50% hedged and have sold a portion of their crop already. If prices spike past $4.00, consider selling more of your crops along the way as prices trade higher hopefully towards my target of $4.50. I wouldn’t hold out for $4.50 because prices may never get there. Instead, steadily scale out of your corn holdings.
For those of you who need to look at hedging next year’s crop, you may want to consider locking in some prices for next year’s corn crop as December 2010 prices reach into the $4.50 to $4.60 area. Right now, December 2010 Corn is trading around $4.30.
Oct. 30, 2009