Commentary: Soybeans are starting to see pressure from a lack of demand amid sizable buying of Brazilian beans by China. There is noise in the market from Private crop scouts in Brazil that the size of Chinese purchases in March and April were record large at over 13 million metric tons per month. While China has made some US bean purchases of late, it is a small fraction of the size they are acquiring from Brazil in comparison, in my view. On the flip side, The US Ag Secretary admitted in March that we wouldn’t see sizable purchases from China to fulfill their phase one deal commitment until late Spring/Early Summer. Plus Brazil’s bean harvest is at 90 percent so supplies are plentiful, and given the weakness in their currency, its an easy choice to purchase from Brazil as it costs less. In my view, its one reason why beans can’t hold rallies. Soon we will enter into US planting and growing season. Usually it brings with it some uncertainties about what’s been planted and early growing season condition. Again, I mention usually and not always, as there are no absolutes in commodities. I think from a spread standpoint, that the Nov 20/21 bean spread might be one to consider once we enter May. The game plan is to lay in the weeds and bid below the market at an area, that if the market holds trendline support, can result in a successful position. I’m looking at buying the Board on an inflation play longer term across a few sectors. Today’s trade will be the first in a few suggestions that I present this week. (See Chart)
Trade Suggestion(s):
Futures Trade: Buy the Nov 20 Soybean/Nov 21 Soybean futures spread at 4.0 cents Nov 20 under. Today it settled at 5.4 cents Nov 20 over, so we are bidding 9 cents below the market, working the order as a GTC.
Options Trade: N/A
Risk/Reward:
Futures: I would risk approximately 8 cents from entry, placing a GTC sell stop at 12 cents Nov 20 under. The risk is $400.00 plus commissions and fees. My first target for exit would be the top end of gap at 14 cents Nov 20 over. That would return 18 cents minus commissions and fees. Above that one could offer the spread at 17 cents Nov 20 over or the high of the year at 33 cents Nov 20 over.
Options: N/A
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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