June 16, 2008

ADM trading accelerates fivefold as floods boost corn prices

Trading in Archer Daniels Midland (ADM) options jumped to five times the normal daily volume as the company's shares dropped 10 percent to US$33.52 apiece on the New York Stock Exchange.

Investors sold off large batches of June US$35 calls, which convey the right to buy ADM stock at that level, and bought June US$35 puts, which convey the right to sell the stock at that level.

The bulk of activity in near-term options reflected bearish behavior, yet some traders appeared willing to take bullish bets in the long run.

They bought considerable amounts of January US$35 calls, which cost US$3.35 and make money if ADM stock climbs above US$38.35.

William Lefkowitz, an options strategist with vFinance Investments, noted that some could be saying that the company's fundamentals look strong and there may be a bounce in the stock.

Trading in ADM rose after heavy rains in Illinois, Indiana, Ohio, Iowa and Wisconsin pushed corn prices to more than US$7 a bushel.

As a producer of ethanol and corn sweetener, products that use corn as a raw material, ADM could see its margins squeezed, Citigroup said in a report.

The rising price of corn also prompted trading in Corn Products International Inc., which uses corn to produce starches, sweeteners and other ingredients.

Trading also spiked in Bunge Ltd., an agribusiness and food company, as traders rolled up bearish positions in the company's options.