Corn futures were able to round out the week on a positive note with December corn futures settling 4 cents higher to 414 3/4, that was 11 3/4 cents off the intraday low, but still 9 1/4 cents lower. Today’s rally came on the back of a better than feared USDA report which showed bigger than expected drops in old crop and new crop ending stocks. Old crop stocks came in at 1.877 billion bushels, that was well below the average estimate of 2.049 billion bushels. New crop ending stocks came in at 2.097 billion bushels, down from the average estimate of 2.312 billion bushels. Perhaps the biggest surprise from these numbers was really a lack luster response through the afternoon trade. At the very least, it certainly shakes up the conversation a bit and perhaps can spark a little more of a two-sided trade, (vs what has felt like a one-sided move lower).

Friday’s weekly Commitment of Traders report showed funds were net sellers of about 17.5k futures and options contracts through Tuesday’s trade, expanding their net short to 356,415 contracts, that’s enough for new record net short. Broken down that is a whopping 509,165 shorts VS 152,750 longs.

Below is a look at the one-hour chart of December corn futures (on our Blue Line Edge trading platform, free to brokerage clients). As you can see, today’s price action may have not met expectations relative to the report, but it was enough to at least get us back above our pivot pocket from 412-413. So long as the Bulls can defend this pocket, we could see futures try to repair more of the technical damage that has been done over the last several weeks. 420-422 is the next hurdle for the Bulls to overcome, a move above here could spur more short covering regardless of the fundamental landscape. Above that pocket and the next upside target would be a full retracement of the breakdown point from the quarterly stocks report which comes in closer to 432.

So, what are a few ways to play for a counter trend trade in the corn market? That depends on an individual’s risk profile (account size, risk appetite, risk capital, trading objectives, etc), so to lay out a one size fits all strategy is something we’ll avoid doing for a public post (call our trade desk to discuss a strategy suitable for you!). With that said, for a counter trend trade setup we like to look to the options market as a way to help gain some exposure while minimizing the risk. Looking at the CME Group CVOL index for corn, we see volatility (imagine it as a measure of fear/uncertainty) well off the highs from June, which may make options “more affordable”. For reference, it looks like the October $4.20 call option (that trade off December futures) last traded at 13 1/4 cents, those options have 70 days until expiration.

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