wmeubank@ocp.kcmo.com
COMMODITY INSIGHT
152 Ennis Lake Road, Ennis, Montana
(November 2, 1997) CORN: Grain prices ended the week on a sour note thanks to sharp losses in world equity markets and particularly because of the hard hit experienced in the Asian markets. All in all, it was not an especially good week for the grains. But for that matter, it was not a good week for any market on the board.
However, from a fundamental viewpoint, grain prices should work higher into summer of 1998. With stocks of corn in the U.S. at their second-lowest level in 20 years, along with the smallest global stocks of corn in history, logic suggests that higher grain prices are coming. Unfortunately, we are not trading logic, we are trading futures. It is a well-known fact that the futures markets can defy logic for months on end.
Therein, lies the dilemma facing grain producers and traders. Do corn prices rise into the summer because statistically higher prices can be justified? Or do corn prices work lower due to the instability of the world and Asian equity markets?
Even though this past week was bearish for grains, several deep-pocketed commercials were using the weakness to probe the long side of corn. At mid-week, one commercial had purchased 10,000 $3.00 corn call-option contacts. On Friday, another commercial bought 18 million bushels of nearby December corn futures. I view those actions by both commercials as quite bullish. A low in corn prices may have been established Friday.
For the next five days, buy (2) December $3.00 corn call options at the market. Also, buy (11) July corn at $3.00 with an intra-day stop of $2.90. My work suggests a stiff rally for grains is at hand.
Jerry F. Welch
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