Soy Complex
Soy meal has led the wave higher in the soy complex and has been the catalyst for outright beans to rally amid short covering. March beans traded up to a five-week high at 987 before pulling back to close at 984.4. The rally in both meal and beans comes on two fronts. In beans, managed money as of Tuesday January 16th was short a whopping 103,397 contracts. The record short for the month of January is 118,683 shorts. Why the near record short position? In my view, managed funds made big bets ahead of the January 12th USDA report with many private forecasts looking for an ending stocks number over 500 million bushels. The USDA not only reported lower than expected ending stocks at 475, but lowered final yield and production also. While the numbers weren’t alarmingly bullish, they just weren’t bearish vs expectations. In my view, funds got caught the wrong way which has led beans to rally over 42 cents since the report while meal has rallied almost $30.00 a short ton. Argentina the world’s number one soybean crusher saw very spotty rains in the northern growing areas but the central and southern regions remain dry. Moving forward in the 6 to 10 and 11-15 day forecasts Argentina remains hot and dry in the central and southern regions. It is already being reported that there are 590 K hectares that may not be planted in the Northern provinces. Due to the weather issues, there have been a few forecasters shaving their outlook for Argentina’s soy crop from 56 million metric tons down to 51. Keep in mind its early still. Unlike Brazil that already has started harvesting in some areas, Argentina’s bean crop has just been planted. The market though is starting to build a small weather premium as end-user buying has picked up in meal. The bean rally is experiencing this too but with the sizable short in the market, there appears to be more room on the upside.
Trade Ideas: Last week we suggested buying old crop/new crop bean and meal spreads at parity or even. Since that suggestion, July/Nov beans have rallied to a 5 cent inversion while July 18 /Dec meal spread has rallied 4 handles to 4.0 over from parity. I still like both plays here. July/Nov beans for instance has broken 31 cents from the its October high to last weeks low at a 5 cent carry. A fifty percent retracement takes the market to 10.4 over which is where I think we are going in the near term. Look to buy pull backs at 3 or 4 cents July over November. Stop losses below the recent lows at negative 5. My upside target is at 14.2 over. For July/Dec meal, look to be a buyer on dips as well should we get them. As long as Argentinian stays dry, end users, funds, and then specs will be aggressive buyers in my view. If we can get a pull back to lets say 2.5 to 3 handles July meal over Dec, get long with a stop at 2 handles under. My target is 11 over. Option players and especially producers who want to take advantage may consider the following trade. Buy the March 10.00 call for 8 cents. Sell the May 11.00 call for 4 cents. Close the position on a soybean close under 960.
***Each Thursday I hold am free grain and livestock webinar at 3 pm central. Click on the link below for sign up, a recording link will be sent to your email.
*** Feel free to reach out for a free marketing plan for your production in both grain and livestock sectors. Call or email me at 888 391 7894 or slusk@walshtrading.com