Commentary: Amid all the uncertainties in the market right now I feel one must stay disciplined regarding entries and exits. In my view we are going to be more headline driven in regards to futures prices where I can see funds entering and exiting in masse with large volume. We have seen movement in grains this week for sure but not to the extent of the daily volatility seen in equities, energies, or metals. Not a surprise given that we are still a few months away from Spring planting. Having said that I have been studying some spread opportunities that I think one should consider here. The Nov 20/Nov 21 soybean spread. A few weeks ago, the USDA held their annual AG forum in Washington DC. They offer a series of assumptions and guesstimates on future plantings, yield, and demand outlooks. They lean on data compiled in the October and November WASDE reports and re submit the data coupled in with factoring in some of the trade deal demand from the Phase 1 Deal with China. Its unknown whether they factored in Coronavirus in their estimates regarding demand. Even still they pegged ending stocks at 330 million bushels. Extremely tight given that ending stocks were pegged close to one billion last summer. Also, tight given that Brazil is looking at a bumper crop for beans this year and that their currency is significantly weaker than the Dollar making Brazilian beans cheaper in my view given the currency spread. Regardless of higher plantings given the acreage increase this upcoming crop season has been assumed in my view by market participants, the USDA has projected ending stocks almost 100 million bushels than where they are currently at 425 million. Do they know something about future demand or usage to warrant ending stocks close to 300 million? Below is a Nov 20/Nov 21 bean chart. Its trading at a carry.
Trade Suggestion(s):
Buy the Nov 20 soybean and sell the November 21 soybean spread on a pullback near the upper trend line at 1 cent Nov 20 over.
Risk/Reward:
Futures – I would put a stop loss at 9 cents Nov 20 under which is risking $500.00 plus commissions and fees. My target would be to sell this spread at 32 cents Nov 20 over.
Options –
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