October enters as a very critical time period for corn and beans as the harvest low price this month should hold as a low for the rest of the year and through July of 2010. This creates not just a near term buying opportunity but long term. The last two years saw a late September Rally on month end short position profit taking and buying ahead of the USDA September Rally on month end short position profit taking and buying ahead of the USDA September Small Grains and Stocks Report only to move lower in early October on harvest pressure with lower cash bids by commercial storage elevators. Trend following funds are primarily seasonal chart traders. Only a hard freeze or frost over the Midwest Grain Belt through mid-month would keep a price break in check. It is this October Low on corn and beans that needs to be bought on the following issues. Commercial ethanol producers in need of cheap corn inventory see current cash corn prices 4.50 per bu. Under the 2008 High and 1.40 under our 2009 High. We are currently cheaper than the two prior years as we enter October. It is a golden opportunity for ethanol producers to lock in cheap inventory and I expect them to be aggressive buyers. The Asian community of China especially looks to be aggressive buyers of corn and soy beans for its soy meal and their feed ration for expanding hog and chicken populations. China looks for the fourth consecutive year to increase soy bean imports to satisfy their mandate to bring a more protein rich diet to their population. Recent drought conditions in China has cut their corn and bean production at a time when they are purchasing U.S. grain to continue building a strategic corn and bean reserve to insure their protein mandate goes unimpeded. Additionally, China looks to aggressively over book U.S. bean purchases this Fall on fear, number two world producers Argentina and Brazil may have weather related shortfalls in production as seen last year. Their crops and production becomes clearer at key yield time in February and March. Until then the U.S. is the sole port of origin for high protein crops. Farmers look to be aggressive sellers of beans as harvest begins but only enough to pay debt due at harvest time and they will lock up the rest until Spring high prices comes in. Farmers also look to let a lot of corn sit in the fields well into November to save on drying and storage costs; then store more than they sell in hopes of catching the Spring high prices which the last three years have been far higher than harvest Lows. Profits from the historic high 2008 crop year and handsome profits this past year allows growers to store more for higher prices later as they are not cash strapped as in prior periods. This light marketing of cash grain this Fall looks to set in motion higher cash bids and Futures late October into December. With early to late Spring seeing higher corn and bean prices as they each look to push higher to insure each crop captures maximum acres to be planted and keep ending stocks from further erosion. Near Term technical traders can buy December corn between 2.94 and 2.80 if Hit or Buy a close over 3.46. November beans can be bought as close to 8.40 as possible or a close over 9.35, which ever comes first. Long Term traders can consider, Buying 1 July 3.70 Corn Call, selling 1 4.20 Call for 16 cent O.B. Break even is 3.86 profit at 4.20 is 34 cents on expiration. A more aggressive trader can Buy 1 July 3.70 Call and Sell 2, 4.20 Calls for a 6 cent credit to you. Maximum profit is 56 cents. This year's bad Spring planting only had us trade to the 4.20 area at best. Bean traders can Buy 1 July 9.20 Call and Sell 1 10.40 Call for 36 cents O.B. maximum profit 84 cents. Break even at 9.56. Aggressive traders can Buy 1 July 9.20 Call and Sell 2 July 11.00 Calls for 8 cents O.B. maximum profit is 1.72 on expiration.
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