Speculator’s Corner: Corn Prices Getting Canned

| March 25, 2013 | 0 Comments

corn pricesLast summer the worst drought in 70 years baked the heartland of America to a crisp.  The extreme heat and lack of rainfall baked fields of corn into worthless husks. 

The drought ended up destroying 13% of last year’s corn crop.  It resulted in the smallest production since 2006.

As the temperatures rose, so did the price of corn.  The price for a bushel of corn reached a record high of $8.49 on August 10th.  But the damage wasn’t nearly as bad as what many feared it would be. 

What’s more, the outlook for global supply has improved and high corn prices have curbed overseas demand for US corn.  In fact, a recent report from the USDA showed exports have fallen to the slowest pace since 1972.  In short, demand for US corn doesn’t have much upside.

And the supply side doesn’t look that great for corn prices either.

US corn producers are expected to plant between 96 and 99 million acres of corn this year.  If Mother Nature cooperates, the US will increase production by more than 30% this year!  That’s a lot of new supply…

As a result of the changing fundamentals in the corn market, the price of corn has been steadily falling since their peak last August. 

Teucrium Corn Fund

As you can see, the Teucrium Corn Fund (CORN) is currently trading for $44.02.  The ETF is down 16.5% from the 52-week high of $52.71. 

This ETF seeks to replicate the daily changes in percentage terms of a weighted average of the closing prices for three corn futures contracts that are traded on the CBOT.  In short, it’s a good proxy for the overall corn futures market.

You can also see a pronounced downtrend has formed in CORN since last August.  It’s set three lower highs and three lower lows over that time.  A quick look at this chart gives me a downside target for CORN of around $40. 

This looks like a good time to speculate on CORN taking another leg down in the weeks ahead.  The CORN May 2013 $42 puts for around 85 cents will double in value if CORN falls to $40.35 when the option expires in May.

Good Investing,

Corey Williams

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Category: Speculator's Corner

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.