Commentary
In scanning the grain Board, I’m finding one commodity that is negative on the year. It is soymeal. The reason why its lagging is its inverse relationship to soy oil in my opinion. Near record crush of beans month in and month out domestically has been for the soy oil. Poor Palm oil production in Asia last year, lower sunflower seed oil production in the Black Sea were two fundamental factors last year into this year that sent futures soaring higher. This coupled with lower production of beans last year amid an inflationary environment has spot soybean oil futures up near 40 percent in the first four months of the year. The world’s green movement drove the development of an alternative fuel called renewable diesel, with other compliments emerging as well. New production plants are popping up across the country, and around the world, with uses ranging from trucks to planes. Soy oil is the leading feedstock, but that drives up demand for alternative oils as well in my view. There are rumors within the trade that renewable demand is expected to exceed the supply over the next five years, pushing the industry closer to the point of crushing for oil. While bean oil demand looks to drive price, I think the funds look for any commodity that’s deemed cheap in the ag sector and potentially push it to at least unchanged, and push it higher for the year. Unchanged is 4.30 in meal for 2021. Five percent higher on year is 4.51. Ten percent higher is 4.73. I am going to structure some options spreads around this level. Chart included is the weekly continuous Soymeal chart.
Trade Ideas
Futures-N/A
Options-Bid $4.50 on the September 450/480 call spread.
Risk/Reward
Futures-N/A
Options-the risk is the price paid for the spread plus commissions and fees. Here it is 450 dollars plus commissions and fees. If filled risk the spread to 1.50 or put a GTC sell stop at this level. One is risking approximately 300 dollars plus trade costs. I’m looking for meal to move if it rallies to 451 and then 473. I feel the risk is worth the reward. The options expire in late August. I am viewing this as an inflation play more so than a supply/demand issue.