Intra-day reversals in wheat and continued holding of trend line support in beans and perhaps a lack of selling interest in soy meal has me thinking of a potential spread opportunity is upon us. What I am referring to is old crop/new crop meal spreads; the July 18/Dec 18 soy meal futures spread. See chart below or email me if you can and I can present the case to possibly get long here. Prior to the January 12th crop report this spread was trading at a carry, where July meal traded 1.80 below Dec. From there and subsequent soybean rally, this spread pushed out to 25.4 a short ton July over. It has since collapsed from that high to a low of 1.90 (July over). Today the spread showed a little life settling at 3.90 July over. It seems that for now meal is reluctant to turn over. A reason why I’m thinking it could go bid was another sale of soybeans to Argentina this morning. This is the second sale of beans to Argentina in the last few weeks. The last time we had sales to Argentina was over 20 years ago. Why the purchases? Since Argentina’s bean crop this growing season has been cut to the tune of 35 percent, the buying could give thoughts of end users being caught short with meal. Argentina crushes fifty percent of the worlds meal and its need for beans come harvest is insatiable as harvest is upon us. Today’s purchase wasn’t jaw-dropping in total as Argentina purchased 130,000 for future shipment. 60 K was for old crop delivery and 70 K was for 18/19. Outright July beans have tested key support at 1028-29, the last two sessions and would need to hold this level on a weekly close or suffer a potential price break to 10.02. I think if meal holds though so do beans. Use tight stops regardless if buying outright futures contracts.
Trade: Buy July 18 Meal and Sell Dec 18 Meal at (3.0-3.9) July over. Target at 9.0 over and then the fifty percent retracement level from the Jan low to the March high at 12.0 short tons July over. Risk 3.0 points from entry or in cash value $300 plus commissions and fees.
KC wheat vs Corn:Whipsaw action has whipped this trader for scratches or small losses in the KC wheat or Chicago wheat vs Corn. The reason is every weather forecast has seemed to flip-flop from too dry in the western wheat belt to enough rain in the areas of need. Today we rallied off of support at 4.96 in KC wheat a trend line up the page. We traded through resistance at 5.07 and up to 5.12. A close over 5.16 could push July KC to a target at 5.38. If we firm again tomorrow I would not be short KC or Chicago vs Corn. KC wheat vs Corn settled at 1.22 KC over basis July. If looking to buy this spread, I think a rally can push this spread to 1.44 KC wheat over, my first target, another 22 cents from today’s settle. It looks to me if KC wheat can hold 5.07 basis July futures on a weekly close the path of least resistance is higher in wheat. Trade the charts.
Call me with any questions or comments on a spread or options relationship that you may be looking at. I can be reached at 888 391 7894 or slusk@walshtrading.com
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