News entering into the market over the weekend was the major catalyst for beans moving higher overnight and through today’s session in my view. The “news” that pushed beans higher was that China and the US would work in tandem to lower the US trade deficit for now while a potential 25 % tariff of US beans is currently off the table. While I was never one that believed the Chinese retaliatory grain tariffs would ever be put in place, the market reacted bullishly with a Sunday night gap open higher of 19 cents. Form there July beans traded up to 1027, besting last weeks high by a penny before consolidation ensued. The market still put in an impressive 27 cent up day to close at 10.25 basis July. Where to from here? Corn followed higher initially trading up past weekly resistance at 406.6 but failed to retest that level and settled the day unchanged. Wheat was weak after moving seven cents higher overnight but eventually lost over 10 cents on the day for the KC and Chicago front month contracts. Back to soybeans for a moment. If we dismiss the the tariff talk since early April and focus on demand, the numbers has been spotty regarding China’s appetite for US beans since early January, as corn was much more favored by the Chinese throughout the first quarter. It has remained that way up until late last week as China cancelled a large previously made purchase of almost 1 million metric tons of beans. Weather issues in South America have been the reason in my view for beans to continue to hold above 10.00 even as domestic carry-outs are near all time highs at 530 million bushels for old crop. Planting numbers for beans this season currently stand at 56 percent planted versus a five-year average of 44 percent and 50 percent last year. While these numbers to me don’t scream planting delays, the anticipation of increased demand from China could return funds as willing buyers until potential weaker export data in the weeks to come weighs on the market. We witnessed a 29 cent rally from last Friday’s settle to the high of the day in beans today, but old crop/new crop beans and meal spreads either traded unchanged or at a small loss. This tells me that the old crop carry of 530 million bushels domestically may be enough cushion to counter any short squeeze in July/August beans or meal in the weeks ahead.
If one is looking for a bull calendar spread look no further than the Nov18/Nov19 calendar bean spread. Should beans keep moving up the charts, look to buy this spread at 45 cents Nov 18 over, with a stop at 38 cents. With the new crop carry at 415 million bushels, any friendly adjustments to future exports and production could push this spread past 58 cents Nov18 over (April spread high) and move to 80 cents over on a summer weather driven rally. Should the opposite occur and beans break, this spread to me is an excellent for a producer to use as hedge a percentage of their bean crop. New crop November 18 beans would likely need to move significantly from the April highs (10.67) over to suffer any major hedge loss using the board. Watch the gaps on the daily charts on July beans and on this Nov18/19 spread. The bottom of the July gap sits at 1007.6 while the bean spread sits at 38.4 cents.
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