CHICAGO (Reuters) — Despite a grim economic outlook, investors in the U.S. grains options market are betting that corn prices will hit a record high $8 per bushel by the end of November, an analysis of data by Reuters showed.
That would be more than $1 higher than the price of December corn futures Wednesday at the Chicago Board of Trade and close to the all-time high for a spot contract of $7.99-3/4 per bushel set in June.
Open positions in CBOT December corn call options at the strike price of $8 per bushel stood at 82,502 on Wednesday, a record high for that contract.
Open interest in the contract has surged about 27 percent since the start of July, a critical month for the U.S. corn crop as it pollinated and set yields.
Traders have been buying $8 calls as a bet on higher corn futures prices since U.S. corn yields have been scaled back following a heat wave in July that harmed the crop.
The contract high for December futures is $7.22-3/4, set on June 9. On Wednesday the contract was trading around the $6.90 level.
“The open interest in December $8 (calls) is enormous. It will probably be choppy over the next couple of months but the $8 strike is what everyone is looking at,” said Matt Pierce, analyst for GrainAnalyst.com.
(December corn graphic: http://link.reuters.com/…)
Buying call options is usually a bullish play and some traders are of the view that the size of the U.S. corn crop could shrink due to damage from above-normal July heat, excessive spring rains in the eastern Corn Belt and flooding in the northern Plains and western Belt.
The bullish bets in options run counter to fears that sputtering U.S. economic growth might be halted by the shocking downgrade of the U.S. credit rating by Standard & Poor’s that convulsed the financial and commodities markets.
“I wouldn’t rule ($8 corn) out. I think everyone is aware the corn yields aren’t going to be as good as expected earlier in the summer,” an options trader said.
Some analysts are expecting the corn yield per acre to be as low as 150 bushels, compared with the U.S. Department of Agriculture’s current outlook for 158.7.
USDA will update its estimate on Thursday in its August supply-demand report, but analysts and traders do not think the government will lower yields enough this time around to fully reflect the heat damage.
“This report will be based on field surveys but they will just count ears, they won’t be fully inspecting ears to reflect damage from poor pollination. That will come later,” said Paul Haugens, vice president of Newedge USA. “We all know the corn crop isn’t as big as USDA says.”
Haugens and others agreed that outright buying of December $8 calls is less risky than buying futures outright as a bet on prices hitting that level. But the big open interest in $8 calls was not set only by net buying.
“The open interest is big but some of it, actually a lot of it, was bull-call spreads … going long $7 and $7.50 calls and short $8 calls,” Haugens said.
“That is an even less risky way to get long. If the market does turn down they’re protected with the short position,” he said.
Source: Reuters
Posted by Haylie Shipp
