The charts above give a graphical depiction of much of what one might expect when it comes to WASDE reports and futures prices. In fact, one may listen to me describe it and tell me that I have a firm grasp of the obvious. However, I still think there's something to be gained from them. The charts both show the influence of the WASDE report on ending stocks, yield per acre and area under production on the futures price. I have inverted the WASDE lines because the lower the ending stocks, the lower the yield and the lower the area under production should and have historically led to higher futures prices with the opposite being true. Now, as traders anticipate the report on April 10, these numbers are all suggesting markets should potentially see higher Corn and Soybean futures prices. This is somewhat at odds with the better-than-expected harvest in Brazil and the worse-than-expected demand from China and Mexico because of the tariff and trade frictions traders are watching play out in the market right now.

Turning to the recent price action on the market, I look at the charts of the generic front-month futures for both Corn and Soybeans. In the top chart, I see that Corn futures are still trading above the 1-year moving average for price, even if the futures have dipped below the 1- and 3-month moving averages. The open interest has been moving higher, and the volume has been averaging the highest since this time last year. The picture for Soybeans is a little different however, probably because while both markets are potentially impacted by lower demand as the result of trade concerns, Soybeans are more negatively impacted by the supply coming from Brazil. Soybeans are trading below the 1-, 3- and 12-month moving averages. Open interest has been trending higher, but the volume is only about average over the past year or so. There would seem to be a bit more optimism priced into the Corn futures market than Soybeans at the moment.

Now I head to the volatility markets to see what option traders may be pricing in for the risk of these markets into the WASDE report and 2025 broadly speaking. I want to break it down into three different categories. The top chart has the CVOL index which is a broad measure of the volatility priced into the market. I can compare Corn vs. Soybeans (as well as to all ag markets) but can also compare the current CVOL level of either market vs. its own time series. On this basis, I can see that the level of Corn volatility is typically the same or higher than Soybeans; however, lately, the spread between the two has been widening. Soybeans CVOL is near the low of the last couple of years while Corn CVOL is rising and is above average.

The skew tells me if there is a preference for out-of-the-money puts or calls in either market. Nothing stands out at all in either market, suggesting there is no strong bullish or bearish bias to the options flow happening right now in the market.

Finally, the convexity measure refers to the relative demand for out-of-the-money options vs. at-the-money options. One may surmise that a higher demand for out-of-the-money options could suggest either less conviction since the out-of-the-money have a lower premium associated with them, or a desire for more leverage. While there is no particular signal in the Soybeans market, the convexity measure in the Corn options market has plummeted to levels not seen since the summer of 2023, potentially suggesting there is more demand for at-the-money vis a vis out-of-the-money options. Traders who are buying options overall, as can be seen by a rising CVOL, are showing more conviction by using the at-the-money options. Since there is no strong bias for upside or downside, this may suggest that the demand is simply for at-the-money straddles in anticipation of a view on higher volatility without a directional bias.

Now I want to look at the term structure of implied volatility to get a sense for which expirations have been seeing the demand for options in Corn. It is very interesting for me to see that the implied volatility for April 10, the WASDE report date, is actually lower in the Corn than the dates on either side of it. In Soybeans, where there hasn’t been particularly strong demand for options, I see that the April 10 date trades at a small premium to the dates around it as is evidenced by the small bump in the curve. However, in Corn, there is actually a dip on the April 10 date.

If I use the CME Group Event Volatility Calculator, I can calculate the incremental volatility for a particular catalyst. If I look at the Corn options market on top, there is no incremental volatility priced in for the April 10 date. For the Soybeans market, I see the implied volatility for the particular catalyst comes in at 6.3%, still quite low. Both markets suggest that the April 10 WASDE report will be a non-event, which may be the case since traders will get the March 31 Prospective Plantings report shortly before. However, there is incremental information that will come out after the March 31 catalyst and before the April 10 report.

The Commitment of Traders can give one an indication of trader positioning ahead of the catalysts that are coming out. The top chart shows managed money positioning for Corn, and I see the longs are still elevated, even if it’s off the most long positioning seen near the start of the year. The bullishness is cooling off a little bit, but traders are still more bullish now than at most other times over the past 2 years. The Soybeans market shows no real strong signal nor bias from positioning at all. In this sense, the only potential signal I get from the COT is that Corn traders are still bullish even though that has backed off, so news that signals either higher or lower prices could bring in flows to take the length back to the highs or to get length back to zero. It might take bigger news for Soybeans to see a large move.

The trades I have chosen for this catalyst are each strangles; however, I have chosen different expirations and different types of strikes for each. In Corn, I looked at the Thursday April 10 expiration as well as the Friday April 11 expiration. The WASDE report comes out at 12:00 p.m. ET so even the April 10 expiration would expire after the report comes out. The implied volatility for April 11 was 32.5 while the implied volatility for April 10 was 28.5, thus I am able to take advantage of considerably lower volatility for the day of options. I have also chosen 15 delta strangles in Corn as I get more leverage to a bigger move and because the out-of-the-money options have no volatility premium relative to the at-the-money-options. Thus, since I am betting on volatility, I am able to risk lower premium yet can still take advantage of a big move. With futures below the 1- and 3-month moving averages but above the 200-day moving average, my strikes are placed above the shorter-term moving averages and below the longer-term moving average, thinking that a breach of either of those levels will lead traders either to add length back to their positions or to capitulate on the length still in their books.

With fewer volatility metrics standing out, and with no discount for buying the April 10 options, I choose to buy April 11 at-the-money strangles in Soybeans. The level of implied volatility is lower. I am still betting that the catalyst will move markets and can make money either by re-hedging every day to keep my position delta neutral, or by looking for a move outside the breakeven levels of the strangle. The decision on how to trade the long strangle position comes down to the trader themselves, but futures are still depressed and below all moving averages. It could be better to simply delta hedge at regular and period intervals ahead of the catalyst and then look for break-evens to be breached after the WASDE report.

CME Group offers traders not only a wide range of tools to help zero in on where to express a set of views, but daily options expiration allow traders to implement exactly the expiration and strike they find optimal for their view. This flexibility can add to ‌traders’ overall P&L efficiency by allowing them to tailor specific trades for their view.

Good luck trading!

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