Options Play: Is the switch on?

CHICAGO - April 8, 2016 - PRLog -- Fundamentally, according to the USDA report, corn stocks are up about 1% year-over-year and that puts the number at 2.8 billion bushels of corn. If the number of 96.3 million acres holds up at 169 bushels per acre we could be looking at the biggest corn crop since the 2004/05 season, which I believe was the last El Niño, La Niña year. That's a glut and it could be priced in. Or not.

What could change this big number is the weather. If crop progress is hindered, we could see farmers switch from corn to beans. And if farmers here in the U.S. plant more soybeans than intended, coupled with the fact that there are some huge supplies out of Brazil, we could see a glut of soybeans. This could be priced in to the bean market. Or not.

One thing is for sure ahead of this year's planting season is that nothing is for sure. Look out for a weather market and get ready to pull the trigger because we will have a bumper crop of uncertainty.

Technically, my support area in the corn has still held to my satisfaction. My major support area in the corn market is $3.50 per bushel. It's a small victory for each day the market stays above this support. I have added my favorite technical indicators to the charts below. I have coined them the "10/20/50/BB Trend Finder." They are the 10- (red line), 20- (green line) and the 50- (blue line) day simple moving averages (SMA). I have also added Bollinger Bands (BB, light blue shaded area) and candlesticks (the red and green bars with the candle stick wicks, and on this daily chart each bar represents one day of trading).

On the daily soybean chart below the market has clawed back down to the second area of support indicated by the 200-day SMA (green line) and if it holds here it could go back up to retest the previous high. If the 20-day SMA does not hold then the market will probably go down to test the 50-day SMA (blue line) and that would put soybean prices back at sub $9.

Option Play: One strategy that could be used here to allow farmers to sell their current cash crops could be buying bull call spreads.

http://www.zaner.com/3.0/services/ags