Crop conditions were released this morning a day later than usual by the USDA and perhaps gave the bears some fuel this morning in regards to soybeans. The national average for good to excellent condition came in at 68 percent. This is up 2 points on the week with top producer Illinois up 3 week on week at 79 percent good to excellent. Other major producers of note have Iowa and Indiana at 72 percent each, Nebraska at 82, and Minnesota at 71. States with lower ratings through the growing season like Kansas (up 7 pts on the week) and the Dakotas held steady or showed improvement. The point being is that the ratings number was something to trade today and the numbers to me gave thoughts to a big crop getting possibly bigger. Last months supply/demand report from the USDA had bean yield at 51.6 BPA, and 18/19 ending stocks at 785. While that survey dates back to 8/1, tomorrows report is surveyed on 9/1 which is past key yield development time for beans and maybe closer to reality prior to harvest. Whisper numbers ahead of the report have guesstimates on the high-end at a 53 yield and ending stocks pushing 900 million bushels. These would easily be records if reported, surpassing last months record and a potential bearish nail in the coffin for producers. If bearish supply side numbers like that won’t push beans into the 7’s, what would need to enter into the market to fulfill a 7 handle?
As far as a trading strategy, I like taking positions in meal, specifically option strangles, and am skeptical amid these bearish bean projections. I would not rule out a potential trade deal getting finalized with China entering into the market as a bullish surprise in the weeks to come and I think one needs some upside exposure that doesn’t break the bank.The potential for a friendly report day surprise tomorrow, at month end for the quarterly stocks report, or for the October supply/demand report is a possibility. Lets look at meal for a moment. Non commercial and non reportables still long 58 K contracts, with managed money long 19 K contracts as of the last COT report. Why the long positions? Is it due to the lack of beans grown this past season in Argentina? Is it spreading vs soy oil? Is it a Fall seasonal that keeps funds from flipping to a short position? It’s peculiar to me why Dec 18 soy meal is trading to an inversion (higher) than Dec 19 at 6.0 tons over as of today’s close. In my view I cannot see meal trading between 310-320 basis Dec 18 and Nov 18 or Jan 19 beans breaking 50 cents to 770. In my opinion either Dec 18 meal has to break below the near term low at 303 and challenge 296, last years low or even move all the way down to 262, the 2016 low if the soy complex is going to collapse amid bearish supply side data. If soy meal doesn’t break, I think beans hold at or near these current levels and rally. Just my opinion here but with this in mind I think one should consider the following.
Buy the Jan meal 280 put for 1.20 ($120.00 plus commissions and fees).
Buy the March 19 350 call and sell the March 19 4.00 call spread for 3.7 points (370.00 plus commissions and fees)
In my view have positions on both sides of the meal market into year-end as news of trade deals along with weather events can enter into the market unforeseen. If one researches what meal has done the last four September’s post Labor Day weekend, the charts tell us that an expanded move maybe coming. It’s hard to tell yet direction, so I’m placing orders in both directions.
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