Soy Complex
Beans continue to get downgraded in Argentina as needed expected rains continue in central and southern region growing areas. Argentina’s largest grain exchange lowered bean production to 39 million metric tons from 42 million last month, with the USDA at 47 earlier in March. Friday’s reversal in soy meal from 360.0 Friday morning to an overnight Monday high of 385 a short ton pulled May beans from 1009 the Friday low, to the overnight high at 1040. Meal though experienced a weak close today, finishing at 375.0 but held minor support down at 370.5.Continue to use meal as a trigger for beans. We have been pounding the pavement on this belief. Thursday brings end of month, quarter, and the end of the trading week. The biggest event though will be the prospective planting number at 11 am central Thursday. Average trade guesses for beans for plantings come in at 91.4 million acres or 1.4 million acres higher than last year. The average trade guess for March 1st quarterly bean stocks is at a record high of 2.03 billion bushels compared to last years 1.739 billion bushels. In short the trade is looking for a bearish report. It will become report day bearish if the acreage number comes in closer 93 million acres with a stocks number well above the average trade guess. Which brings me back to meal. If Argentina’s crop erodes further, we could see another round of commercial end user buying in meal that will push this market higher. Minor support 370.5, major support at 363 this week. Resistance is at 383 (major), a weekly close above and the next level is at 4.02. I suggest one be agnostic here and play the market both ways using option strangles. Pre-report trading could have bigger swings as managed funds liquidate while recent shorts cover. If you extract the weather issue in Argentina, this market in my view should work lower as we work into April as demand continues to be spotty. I know the market has reacted to this tariff talk and the fears of a trade war may have been spilled into prices for beans and corn. It is my opinion that the tariff talk is just noise in the market or at least that is my hope. Holding the American farmer out to dry is not the answer to our trade deficits.
Option trades to consider: I’m avoiding May options as you will see an erosion of premium following Thursday which would only benefit a premium seller. Too much report day risk in my view. I want to quantify the risk but initiate trades that have bigger potential in my view in the long term. Use Week 1 options if you want something near term. Call me and I can offer a few ideas.
Long Play Beans: Xmas Tree. Buy 1 July 1060 call, Sell 1 July 1120 call Sell 1 July 160 call for a six cent debit or $300.00 risk plus commissions and fees.
Short Play Beans: Buy the Sep 1020 put and sell 2 Sep bean 1160 calls for 6 cents or $300 risk.
July 18/Dec 18 Meal: If July/Dec Meal can close over 12.6 over, buy with a stop under 6.80 July over Dec meal. Objective 25.4 over the old high. We settled today at 12.0 over. Trend line is from this years high at 25.4 to last weeks high on this spread at 13.4.
Each Thursday at 3 pm central time I hold a free grain and livestock webinar. A recording link will be sent to your email upon signup.