Thirsty Corn Setting Up for Bounce
Corn futures are ticking higher this morning, as a late start to planting and dry August weather could be setting up for a fall bounce. From a technical point of view, the chart pattern looks set up for a move above the 50-day moving average, which should put December corn futures at $6.53 a bushel. I see a possible bounce to $7.
Professional Farmers of America (Pro Farmer), a web site and advisory service which a lot of grain analysts pay attention to, pegged the 2008 U.S. corn crop at 12.152 billion bushels, and cut their yield-to-acre estimate to 153.3 bushels per acre, lower than the USDA’s last forecast of 155. It looks like the crop is a bit immature given spring flooding that delayed planting, and Pro Farmer estimates an early frost could lower the yield-per-acre to 147. There was news of frost already hitting the upper Midwest, although not in key growing regions. But dry weather is in the forecast, adding to the bullish tone.
Commenting on the Illinois crop, Pro Farmer said “maturity should not present a major issue for the Illinois crop under normal conditions the remainder of the growing season. But the poor start to the growing season and dry conditions have taken some ‘off the top’ of this year’s crop.”
Dow Jones reported this morning that Morgan Stanley called the USDA’s forecast for the U.S. 2008-2009 corn yield “too aggressive” after surveying fields in Illinois, Iowa and Minnesota, stating many fields showed “immature, thirsty corn suffering from nitrogen leaching caused by heavy rains in June.”
Corn futures gained 10 percent last week, and I see more upside. I am recommending the December 660/700 call spread. It offers a maximum profit of about $2,000 not including your commissions, and a cost of about $550, not including commissions, which represents your defined risk. These options expire November 21.
Feel free to call me with any questions you have about this strategy or others to suit your particular account size and risk tolerance. Ask about our special half-off commissions offer for new clients.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
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