No-Brainer Corn Trade Could Bring Home 38% by Harvest Season

StreetAuthority Network

Crop growing seasons are dictated by the weather. Farmers generally plant in the spring and harvest in the fall. Some countries, like Brazil, in the Southern Hemisphere are able to do the opposite because of their weather, but farmers and traders know in advance when crops should be planted and harvested. This pattern has an impact on prices and results in a cycle that can be seen in the price of corn and other grains.

The chart below shows the seasonal pattern for corn. Traders in the futures markets use charts like this to understand the normal direction of the trend. Corn usually starts the year by moving higher. There are some smaller up and down moves, but the price generally peaks in August and then falls into November.

View gallery

Corn Chart

Corn is mostly planted in May and June. Harvest can begin in September and is completed by November. This explains the November bottom in prices seen in the chart. That is the time when all of the crop will be out of the field. There will be no additions to supply for months and prices should move up as supply decreases.

An August peak is shown in the price chart despite the fact that prices drop more than 60% of the time in July. The peak indicates that up moves are fairly large, and often driven by panicked reactions to weather reports.

During the summer, grain markets can be driven by news. For example, a hail storm in the Midwest could destroy thousands of acres of corn and push prices up. Often the damage will turn out be isolated to a small area and prices resume their downtrend.

This year, farmers planted more than 97 million acres of corn, slightly more than last year. The U.S. Department of Agriculture (USDA) also expects farmers to enjoy better yields than last year. USDA estimates are for yields of about 156 bushels of corn per acre planted, compared to about 123 bushels per acre realized last year.

With a big harvest expected this year, there is every reason to expect to see corn follow the seasonal pattern and decline in price into the fall. The USDA expects the price of corn to fall to $4.40 to $5.20 per bushel. Currently, futures on corn are trading at about $5.35 a bushel.

Until recently, futures markets were the only way an investor could benefit from a decline in corn. There are now ETFs that allow investors to trade grains just like they would trade stocks, and options are available on many of them. Put options on corn ETF Teucrium Corn (CORN) offer a way to profit from the expected price decline.

Put options give the buyer the right, but not the obligation, to sell 100 shares of a stock or ETF at a predefined price before a predefined date. If prices fall, buyers of puts profit. A put option on CORN expiring in November with an exercise price of $40 is trading at about $3. This put option could deliver a large gain if CORN falls.

The daily chart shows that CORN may have completed a small double-top pattern and is starting to move down. Prices moved higher in May as wet weather delayed planting and traders took positions to benefit from problems that could develop if that weather continued. The weather changed and planting is back on schedule.

View gallery

Teucrium Corn Chart

The price target from the pattern shows that CORN could fall to $35.46. At that price, the $40 put option would be worth at least $4.54.

Corn prices may move up and down with weather reports through the summer but should be lower by November. Puts allow traders to benefit from that seasonal trade with risk limited to the amount they pay for the option.

Recommended Trade Setup:

-- Buy CORN Nov 40 Puts at $3.25 or less
-- Set stop-loss at $2
-- Set price target at $4.50 for a potential 38% gain in five months

Related Articles


View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • $40-Off Limited Time Offer From Norton

    Award-winning PC protection that doesn't slow you down. Easy installation & money-back guarantee. Download today with our $40-off limited time offer.

    AdChoicesNorton by SymantecSponsored
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • 5 Questions That Will Not Get You Hired

    The wrong questions can tank even the best interview. Here are five questions you should never ask in a job interview.

  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • American Express® Cards

    Earn Cash Back, Travel, or Points. Find the Card That's Right For You!

    AdChoicesAmerican Express®Sponsored
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

  • Fall means cool savings at

    Save big on appliances, apparel, lawn and garden, tools and more. For fun in the sun or a project in the shade, start your search at Sears.

  • Play

    Tues., Sept. 16: Watch Humana Stock

    Humana, Global X Social Media Index ETF and Majesco Entertainment are among stocks to watch. WSJ's Chris Dieterich discusses the details with Michael Casey. Photo: Humana

    WSJ Live