Soy Complex
Both beans and meal continue to grind higher on the charts as drought like conditions in Argentina continue to provide a bid into the market. WX Risk, the AG weather site sees temps ranging from 100-113 fahrenheit in the Central and Southern growing areas through this weekend. The extended hotter and drier conditions which continue to worsen in updated model runs in the 6 to 10 day forecasts have caused managed money fund shorts which totaled 81 K as of Tuesday of last week, to cover positions in my view. March beans traded to a daily high of 1004.6, just above trend line resistance at 1003, but settled at 1000.2. March meal showed some strength today trading higher to push above 340, to close at 340.5. Both old crop/ new crop bean and meal spreads that we suggested buying late last week and prior to the January 12th crop report continue to trade higher. July 18/Nov 18 bean and July/Dec soy meal (old crop/new crop) spreads traded higher as a result of this latest weather rally in soy. Should drought like conditions remain in Argentina through mid-February, look for both spreads to double from current levels. I therefore look for July/Nov beans from 7 cents to trade to 14 cents July over November while July/Dec Meal pushes from 5.0 over to 11.0 over. However should needed rains come in by mid month I look for an obvious retreat in both spreads to near parity. Producers can use this rally in two ways and in my view it doesn’t matter if you’re holding beans in the bin or not. If we see beans topping here and weather is not as bad as feared, I would consider the following trades for producers and specs alike.
Futures spread: Sell the Nov 18 bean and buy the Nov 19 bean spread. Currently this spread has broken out from a six cent carry to a 12.4 cent inversion since Mid-December. If it can push to 16 to 17 cents, Nov 18 over Nov 19, look to be a seller with a stop at 23/24 cents over. This would be a decent level for a percentage hedge here as the Nov 18 futures contract sits above 10.10. With spotty exports to China the last few months due to Brazil receiving the majority of exports in beans, a reduction or evaporation of the weather premium in South America would most likely push this spread back to a carry in my opinion. along with the anticipation that US farmers will plant more beans this spring than corn.
Options spread: This is aggressive but if we see deferred July 18 beans push up to the 10.35/10.40 area this week or next, consider the following course of action. Look to buy 1 July soybean 10.00 put and sell 2 July 11.20 calls for a COLLECTION of 9 cents. this means one collects $450.00 minus all commissions and fees. In my view this makes much more sense for the producer than the speculator when evaluating the risk.
Included in tomorrows report will be recommendations for both wheat and corn. Lots going on there with wheat breaking out to the upside. As always I hold a free grain and livestock webinar each Thursday at 3 pm. Signup is free and a recording link will be sent upon signup.
Call or email me for a free grain and livestock marketing prospectus for your production and livestock needs. Margin financing is available through our clearing entity. 888 391 7894 or email slusk@walshtrading.com