Looking at the weekly continuous soy meal chart tells me that a sizable percentage move in this market maybe on the horizon. This comes as funds who were long most of 2018 flipped from a once sizable long position (pre-tariff) to a light net short by late November. Still the market has held a key trendline coming up the page (blue arrow) from the 2016 low to the 2018 low. The market continues to hold and settle above this line. Despite trade deals and pacts that are still in question, a US gov’t shutdown, and burgeoning domestic ending soybean stocks, this market won’t break. Recent forecasts in South America are coming in too hot and dry for Brazil while Argentina is too wet,where there are reports from grain agencies there citing beans needing to be replanted en masse due to flooding. This type of weather event speaks of a more significant El Nino pattern taking place in the Southern Hemisphere. Should this type pattern persist later into January, funds in my view will likely push the soy complex higher amid weather uncertainty. Note: its still early and forecasts could still shift to more optimal growing condition. In my view play the charts. The longer we hold this downward trendline, the more I may be inclined to establish a long position in the soy meal market.
A couple ideas come in as follows:
Near term buy the March 19 325 call for 3.5 points or $350.00 risk. If meal rallies (see chart) , I think the market trades up to 332-335.
Long Term: Buy the July 19 350-400 call spread. Spread cost 4 points OB or 400 risk plus commissions and fees.
Futures Spread: Buy the July 19/Dec 19 soymeal spread. This old crop/new crop calendar spread trading between 3.9 and a 3.5 carry. This spread can move to a 3.0 to 4.0 point inversion if we get a meal rally. Use a 2.0 point stop loss upon entry, risking approximately $200.00 plus fees.
For those interested I hold a free grain and livestock webinar this Friday (1.4.19) at 3pm Central. Supply. Demand, Charts, Weather, and hedging ideas are discussed. It is free and a link will be sent to your email..