Maize Haze
Fundamentals
The dog days of summer have definitely arrived in the Corn pit, as prices have been trapped in a relatively tight 60-cent range since the beginning of July. Producers could not ask for more ideal weather conditions this season, with weather forecasts calling for temperatures and moisture to be near normal this week. The weekly crop conditions report released on Monday had the U.S. Corn crop rated 68% good to excellent , up 8% from the ten-year average at this time. Recent above-normal temperatures may have actually helped the Corn crop catch-up from the delayed plantings seen east of the Mississippi River due to rainy conditions during spring plantings. All eyes will be focused on today's USDA crop production report, which will be the first this season with actual field reports. In addition, the USDA had announced that it would re-survey Corn producers regarding the number of acres planted to Corn, since there was some debate as to the accuracy of earlier reports due to the delays in Corn plantings this spring. Analysts are looking for the USDA to announce that the U.S. will produce a Corn crop of nearly 12.500 billion bushels this year, up from the 12.290 billion bushel estimate in July, and well above 2008 Corn production of 12.101 billion bushels. Average yield estimates are for 157.1 bushels per acre, up 3.7 bushels per acre from the July estimate. 2009/10 ending stocks are expected to have jumped to 1.7 billion bushels, up 150 million bushels from the July report. U.S. Corn exports are at 91% of the USDA's projections for the current market year, up slightly from the 5-year average. With the current price consolidation pattern starting to get long in the tooth, any surprise in today's report could be the catalyst for a breakout from the recent price range.
Trading Ideas
Given the recent tight range in Corn prices, some traders may wish to look into the purchase of at-the-money straddles in Corn options in anticipation of a price breakout from the recent range. With December Corn trading at 331.25 as of this writing, just before the USDA report is scheduled to be released, the December 330 straddle is trading at 57 cents, or $2850 per straddle, with the premium paid the maximum risk on the trade. Ironically, today's USDA report may actually decrease option volatility after the report is released, as traders take off some of the risk premium built into options prices ahead of the government report. Barring a major move in prices after the report is released, traders might possibly be able to buy the straddles even cheaper at some point during the next few sessions.
Technicals
Looking at the daily chart for December Corn, we notice that prices are near the low end of the recent 60-cent trading range. Prices are below both the 20 and 100-day moving averages, which gives the edge to the Corn bears. The 14-day RSI is reading a neutral 42.00. The July 22nd lows of 314.75 remains support for December Corn, with the top of the recent price range at 376.00 acting as strong resistance.
Mike Zarembski, Senior Commodity Analyst
