Soy Complex
Weather and its future impact on yields along with bearish planting forecasts potentially signalling higher US planting for beans this crop year sent beans and meal significantly lower today. Call it a head fake or reversal, but after moving 6 cents higher in soybeans in early morning trading and five handles higher in meal, beans broke over 20 cents while meal finished near 370.0 basis May, 10 handles from the overnight high. Old crop/New crop spreads finished lower across the soy complex as lower bean conditions for Argentina, have somewhat been priced into for now. A noted crop scout also came out with expectations that two million more acres for beans will be planted vs last year in the USA as the prospective plantings guesses began in earnest today. The break today in beans did some technical damage as May settled below 1035, a level or resistance on the February rally that became a level of support back down. However, soy meal held the last two session lows at 370. A close under and its a move lower for both beans and meal. If meal rallies though and takes out 380, do not short beans. We have been advocating shorting either a calendar spread in beans selling Nov 18 beans vs buying Nov 19. This is a safer play in my view especially for hedgers and a position that one can add to should market conditions agree. Currently its at a 31 cent inversion and has dropped 12 cents since trading at 43.4 on March 6th. The breakout on this spread began at negative 5 cents or a 5 cent carry in mid-January. Those thinking we may have one more up in beans or hoping we might which would afford them the opportunity to sell beans higher may be waiting for a rally that never comes. Its a common trading mistake and one I have made a few times before so I understand the psychology behind it. Those looking at options to get short for the long term should consider the following. Stay out of July beans for now in case rains don’t show up again in Argentina. Use September or new crop November. I will give a few examples below of some trades to consider using the aforementioned futures spread or two options possibilities.
Futures Spread: Sell the Nov 18/Nov 19 bean spread at 33 cents Nov 18 over. Use a 12 cent stop loss if filled. Target at 4 cents over.
Options Spread: Buy the Sept 1020 put for 36 cents. Sell 2 1160 calls for 20 cents. Collect 4 cents or $200.0 minus commissions and fees
Options Spread: Buy the Nov 18 1000 put for 35 cents and sell 2 Nov 1180 calls for 19 cents apiece. Collect 4 cents or $200.0 minus commissions and fees.
Call or email me with questions here. 888 391 7894 or email me at slusk@walshtrading.com The option plays here suggested have severe risk, which is why I’m not advocating using the July contract in case one needs to long the market if beans or meal rallies.
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