Think $5 Corn Is Expensive? Some Are Betting On $10 Next Year

Cattle Network

The corn market’s rally above $5 a bushel this fall has stirred growing consternation among livestock producers and others dependent on the largest U.S. crop. As the global grain supply outlook tightens, some traders in Chicago are placing bets that prices may double next year.

Over the past week, trading firms including JPMorgan Chase & Co. and MF Global Holdings Ltd. bought call option contracts that would pay off if corn rose above $10 or $11 a bushel next spring. The options are traded at Chicago-based CME Group, along with futures based on grain, cattle, hogs and other commodities.

It’s rare to see trading in so-called “strike” prices at such lofty levels, CME options traders say. The recent trading reflects heightened concern that smaller-than-expected U.S. crops and increasing demand from top buyers such as China will force grain prices even higher in 2011, said Ed Van, a broker in the CME’s corn options pit.

“There’s real risk out there” for higher prices, Van said. He’s been trading in the corn options pit since the contract was launched in 1985 and said he’d never seen an $11 call traded until the past week. “Price rationing could take it up further. I would certainly think we’re headed higher.”

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