Wagers betting that corn prices will rebound 23 percent were the most-traded option in Chicago yesterday.
Call options giving the owner the right to buy December futures at $4.70 a bushel traded 4,640 contracts yesterday on the Chicago Board of Trade, data compiled by Bloomberg show. Futures for December delivery slumped 15 percent this year to settle at $3.8175 today.
The grain entered a bear market this month on signs of ample supplies in the U.S., the world’s biggest producer. Domestic growers are set to collect the second-largest crop ever, the government said July 11. About 34 percent of plants have entered the pollination phase, the most vulnerable period in the growing cycle.
“When I see big buying like that, it tells me that the smart money thinks prices are close to a bottom,” Michael Smith, the president of T&K Futures & Options Inc. in Port St. Lucie, Florida, said in a telephone interview. “The selling may be close to running out of steam. The market has factored in an absolutely perfect crop, without any pests or bad weather.”
Prices reached $3.7825 in Chicago today, the lowest for a most-active contract since July 2010. Each options contract is for 5,000 bushels.
Global inventories will be 188.05 million metric tons before the start of the 2015 harvest, the most since 2000, U.S. Department of Agriculture data show. Rising supplies are helping to keep global food inflation in check, with the United Nations reporting a third monthly drop in prices in June.
Mild temperatures and ample rain have boosted the corn crop to its best condition for this time of year since 1994, U.S. Department of Agriculture data show.
A lot can still go wrong. Too much heat or dry weather can shrivel crops and cut yields during the pollination phase in July. In June 2012, the USDA was forecasting a record domestic crop and surging global inventories. Instead, Midwest fields were parched during the next two months by the worst drought since the 1930s, and prices touched an all-time high of $8.49 on Aug. 10, 2012.
Golf ball-sized hail last week smashed some corn and soybean crops in Nebraska, and “widespread flash flooding” occurred in parts of central Illinois over the weekend following “copious amounts of rain,” the National Weather Service said.
The 60-day historical volatility measure for corn climbed to near 22 today, the highest since November. On June 26, the gauge for price swings reached an eight-week low.
“Volatility has increased dramatically, but it’s from a very low level,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “We’d need to see another few days of lower prices and rising volatility as a signal that the bottom may be in” for futures, he said.
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