The liquidation theme continued today in early morning trading as corn and beans made new lows before some light profit taking set in later in today’s session. July beans lost 52 cents on the week, July soymeal lost 16 handles or short tons to close just below 358.0 and corn lost approximately 14 cents. KC and Chicago lost only one and three cents respectively. Weather and weak demand in my view were the reasons row crops suffered losses while wheat despite some bullish inputs in the market gave back overnight rallies three times this week. This Tuesday’s supply demand report will offer updated views on future exports and give us an idea on where the USDA sees ending stocks for corn, wheat, and beans with the focus on new crop carry-outs. Old crop is a sizable known in the market unless something drastic occurs. Example: a new trade deal with China or a 180 degree change in the weather bringing a prolonged heat dome in the Midwest absent of rain. Other than that these old crop corn and soybean crops look like the highs are in. About the only savior maybe front month meal contracts that are sought after by commercials or end users short bought down in South America or elsewhere.
I have been fielding many calls with specs and producers alike wanting to buy old crop bean or meal calls or bullish vertical option spreads given the 80 cent price break in beans and 50 handle break in meal. This premise seems ok given the risk to reward maybe from as little as a 6 to 1 to a 15 to 1 return if funds build a weather premium into 4th of July weekend and beyond. Nothing is ever for certain here but the idea is plausible given if you are looking to going long beans, one might want to do it prior to their key yield development time where potential weather hiccups provide a bid in the market. Lets re-examine the thought process. New crop ending stocks were the surprise of last months USDA report missing the average trade guess by 100 million bushels from 530 to 415. With lower acreage already announced year on year and lower production out of South America this past growing season, the market is going to be hyper sensitive to any weather issues going forward. The month and quarter end grain stocks report on the 29th will be heavily watched on what bean acres come in at versus the last quarterly report. Its true we can plant less and grow more but If there are issues down the road its my belief that new crop contracts will offer a better trading opportunity.
Two Spreads to consider
Nov 18/Nov 19 soybeans: this spread has lost 47 cents in two weeks on this break. It settled at 13 cents today. If we grow a good crop this spread will trade from the current 13 cent inversion to a 15 cent carry. However should there be issues this spread in my view will trade back to 30 cents over and the yearly high of just over 58 cents Nov 18 over. Look to be a buyer into month end between 8 to 10 cents over with a 5 to 6 cent stop loss. Call me for levels into this Tuesdays report and into month-end.
Dec 18 Soy meal/July 19 Soy meal
This spread traded from 30.0 handles Dec 18 over a few weeks prior to today’s settle at 8.8 over. This spread was at a carry at 6.6 carry back when meal made yearly lows in early January. Look to be a buyer at 5.8 Dec 18 over on a dip with an objective to 25.0 handles over. Stop loss at 1.5 over.
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