Roger, I currently have 4 $6 March corn calls that I got for 14 cents and are in the money. They are currently worth somewhere around 38 cents. My original plan was to keep holding on to them as I feel like the futures price is going to continue to climb. I think you feel the same way with all your indicators still pointing towards higher prices.
Reply:
Good Morning, Yes, I am very bullish corn and I expect May or July corn to exceed $7.00 this late spring. However, I know there will be several corrections along the way to $7.00.
My initial thought was that March corn was up 40 cents the past two weeks and overdue for a correction, so sell the calls now and buy May calls in late February or after a hard setback in the near term.
I recognize that my bias is to take profit after "big" moves up because prices correct after "big" moves up. But sometimes, those "big" moves are 60 to 80 cents on corn instead of 30 to 40 cents. I usually miss those super big moves because I have recommended taking profit too soon.
Are we going to have a super big move that will move corn another 20 to 40 cents higher before a correction? If you take a look at the calendar, it is the end of month and spec funds usually take profit at the end of the month after a big move up or down. If you look at the seasonal trend chart for corn below, it indicates the January high is usually made at the beginning of the fourth week of January and sells-off into the second week of February. This is the end of the fourth week of January. Thus, it is reasonable to think the seasonal down trend might extend into the second week of February this year instead of just the first week of February.
The March options expire February 18th this year. The seasonal chart looks like the best you could expect is for March corn to be as high on February 18th as it is now. By that time, you will have lost all your time value.
You have more than doubled your investment. It is so difficult to make money with call options, especially in the winter.
If I owned those corn calls, I would sell them and then buy calls on a 20 to 30 cent setback. If March corn goes up 20 to 30 cents from here instead of a correction down, then I would buy four April or May puts with the plan to sell them in late March and buy calls again to ride up into June.
Good Luck and thanks for the business. Roger
Jason Britt is President of Central States Commodities, Inc, a full service brokerage for futures and options trading in Kansas City. Jason said yesterday, as speculator:
With the things I am hearing I would not be outright short wheat for no amount of money.
West Texas Intermediate Crude Oil (WTI) Crude oil finished yesterday at $87.29, up 68 cents for the day.
The Dollar Index finished Friday at 97.22, down 0.03.
March palm oil finished yesterday at 5,790 MYR, up 177, after making a new contract high at 5,800 MYR. Palm oil has 32% and soyoil has 28% share of the world vegetable oil market.
March cotton yesterday settled at $123.76 per cwt after making a new contract high of $125.60. The previous contract high was made last Wednesday and Thursday at $124.78. Cotton competes with soybeans for acres.
A client in North Carolina told me yesterday there will be very little corn planted in the Southeast this year as cotton then beans work better on the net income. Yesterday, he could contract new crop cotton at $1.01 per cwt, new crop corn at $5.90 and would need 169 bushel yield (pretty tough to achieve) to compete with 1,000 pounds of cotton. So cotton also competes with corn. He contracted cotton yesterday.
March Natural Gas is up $0.356 at $4.629 per Metric Million Btu. The contract high was made October 6th at $6.132 per MMBtu. Natural gas is the primary input cost of nitrogen fertilizer.
March Oats finished yesterday up 20½ cents at $6.52½. The contract high is $7.78 made November 22nd.
Rondonópolis, Mato Grosso, in the heart of Brazil's most productive soybean area, received 0.3 inches of rain yesterday; 0.3 inches a year ago and none two years ago (one inch = 24.5 mm). Yesterday's high temperature was 81°F. Day time highs the next ten days will range from 79 to 91°F (100°F = 38°C). Yesterday, in the dry areas of South America: Santa Maria high temperature 87°F with no rain. Cordoba high temperature 85°F with no rain. Salto high temperature 85°F with no rain. Total rainfall and temperatures expected in the next ten days: Santa Maria 0.75 inches 85 to 96°F. Cordoba 0.88 inches 81 to 92°F. Salto 0.73 inches 81 to 95°F.
The Eastern Corn Belt has the same number of rain days in the 10 day forecast than yesterday and the Western Corn Belt has 2 less rain days than yesterday.
Explanation of Rain Days
Every day, every place in the world has a ten day weather forecast issued.
By a "place", we mean a Findlay, Ohio; Arcadia, Minnesota; Atlantic, Iowa; Fullerton, Nebraska; Cordoba, Argentina; Craig, Colorado, Saratov, Russia and ten million localities we have never heard of.
The ten day forecast predicts the high and low temperature for each day as well as whether rain is predicted for each of the ten days, likewise cloudy, partly cloudy, sunny, etc.
We look at the ten-day forecast and if we see rain is predicted for 4 of the next 10 days, we record a "4" and that is what is reported to you. It does not matter whether if it is one-hundredth of an inch or 5 inches. We realize the amount of rain is incredibly important expect a few key days of the growing season, which we keep you informed.
Below is the link for the ten-day forecast for Campo Grande, Mato Grosso do Sul, Brazil. At this moment, it predicts rain 9 of the next 10 days. Thus, this morning, we wrote a "9". Of course, we scan the temperatures and the amounts of rain just to see if anything is getting way out of the norm. By the time you click on this link, the number of days expected to see rain very well may be different than now.
https://www.wunderground.com/forecast/ICAMPO37