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Commentary
Whipsaw action dominated the grain markets today as the implementation of tariffs, then the delay of the implementation per Reuters until March 1st, then a reversal back to the original intent ended a wild day. Couple that with month end on a Friday and we had conflicting rallies and breaks for most of today’s session. The trade overall is acting like there will be little interruption on trade until more clarity is given or if this kicked down the road from tomorrows application of tariffs. The percentages are 25% on Mexico and Canada, and 10% on China. I don’t have specifics on certain commodities or if there will be exemptions on certain products like crude oil. The tariff game with the Trump Administration is played out like checkers or chess. One side moves/bluffs/threatens a piece and the other responds by dodging/ignoring/guarding their piece. Weather continues to prod beans and meal in both directions. Its back to warm and dry after last weekend’s rains in Argentina until mid-February when the pattern turns wetter again. Beans made a new two week low this morning on the tariff news at 10.34 but firmed to go higher in the day session but once again failed to mount any rally to key resistance. Minor resistance is first at 10.58, then major levels at 10.64/66. A close above these levels and we re-test the recent highs and the 50-week moving average at 10.77. A close above all these levels and it’s a break-out to 1101, then 11.10. Support is at 10.34 to 10.39. Closes below could send prices back to 10.09/10. A close below here and its 9.98. The bean market is holding in well despite the fact we have big crops coming from South America. I would like to establish a near term bearish strategy and long term bullish with relatively low risk. One reason is the fact that China may retaliate with cancellations on Ag products as they did last time when tariffs were implemented in 2018. Lightning may strike twice in the same sector. Trade Idea below.
Trade Idea
Futures-N/A
Options-Buy the April 25 10.60 puts (old crop) and at the same time sell the January 26 114/1100 put spread. (new crop). ZSF26P1140:1100: J25P1060[1-1-1]
Risk/Reward
Futures-N/A
Options-Work to offer the spread at a 3 cent ($150) collection or better, minus trade costs and fees. Risk the spread to 15 cents on a stop, risking 12 cents or $600 plus trade costs and fees. If May beans can retreat from current levels down to the low 10.00 level, Take the premium on the April 25 puts which could be 50 to 60 cents in the money and hold the short put spread as a bullish play into this Summer.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax
Walsh Trading
311 S Wacker Drive Suite 540
Chicago, Il 60606