The comments, originating with analyst group Shanghai JC Intelligence, agreed that Chinese corn markets would have to yield to global pricing, but suggested the change to a more market oriented system would be made in 2017 or later.
Markets have been looking for a more immediate change to policies, with new crop Chinese corn trading well below the current price support levels.
Corn was lifted by an influential crop tour, which saw US corn yields at below the US's high forecast.
The ProFarmer Crop tour participants estimated the Indiana Corn crop at 142.94 bushels per acre, compared to the USDA's current estimate of 158.0 bushels per acres.
In Nebraska, tour participants saw yields at 165.16 bushels per acre, which compares to the USDA's current estimate of 187 bushels per acres.
In the Aug. 12 Supply Demand report for Corn, The USDA increased 2015 U.S. corn yields by 2.0 bushels per acre from 166.8 (in the July report) to 168.8. This resulted in increase in 2015/16 ending stocks. Ending stocks are now projected to come in at 1.713 million bushels as opposed to 1.599 million bushels in the July report. (For a discussion of the importance of ending stocks to grain prices
What does this mean for option sellers?
The anticipation of the report coupled with drier weather concerns for August brought higher prices and new volatility to the corn market. With the report out of the way, the uncertainty (and now prices) have subsided. August weather was dry, but not hot, and had an optimal effect on the well-moisturized soil in most growing areas.
We almost always like selling grain calls into harvest, and this year is no different, despite this week's price slide.
U.S. weather stories have distracted the market away from the bearish global-supply picture. We feel the burdensome U.S. crop figures, the advent of U.S. harvest and the new supply it brings to global markets will keep corn prices under bearish pressure well into autumn. In addition, China's devaluation of the yuan this week makes U.S. corn more expensive to Chinese buyers — an outside bearish influence (and unwelcome rib kick to corn bulls already on the ground.)
Thus, our view is that a least-likely scenario would be a rapid and severe acceleration of corn prices into the U.S. harvest. That is the setup call sellers typically seek out.
The 4.30 strike price is close to 2015 price highs — and would seem out of reach given this week's supply numbers.
If you are looking to take premium, we suggest considering the December 4.30 calls at 8 cents ($400) or better on a bounce back rally this week. The market closed off the lows on Wednesday, but we feel the chart damage is done and fundamental values will gravitate steady to lower. If 4.30 strikes do not hit premium targets, investors should still be safe with the 4.20 strike.
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