Grain Spreads: Bean Counting

Sean LuskGeneral Commentary

Commentary

The fear is real. At least it is in my view into Fridays WASDE (supply/demand) report as it relates to soybeans. The March 31stocks in all positions and planted acres report was a bull surprise for new crop beans in my opinion. Planting intentions came in at just 87.6 million acres versus the average trade guess at 90 million. If trendline yield comes in at 50.8 BPA, next year’s stocks would theoretically fall to zero if USDA’s planting intentions estimates are verified with the aforementioned trend yields. Ending stocks could go negative if acres aren’t raised or if those yields fell short this growing season. As such, the market maybe attempting to ration current-year supplies to increase the carryover into the new year to meet projected demand. So far this week, we’re seeing buying come back for both the old- and new-crop contracts, with the old-crop May soybeans up 16 approximately 15 cents on the week so far. The range for old crop soybean ending stocks into Friday’s report is near 118 bushels, versus 120 last month, and a range of 105-135. With export inspections at 90 percent of the USDA forecast for this marketing year, would the USDA increase old crop exports 50 million bushels knocking down ending stocks to 70 million or a 50 year record low?  They certainly could especially after the surprise acreage number. However, to offset a increase in demand they either decrease usage and lower crush or raise imports. A lot can happen but we have approximately 5 months left in the marketing year, so tightness in the old crop market will likely remain. I have plenty of ideas heading into this Fridays report, but for coverage both ways for a report day surprise, consider the weekly  options strangle that expires this Friday. Given the unpredictability of the USDA and increased volatility in the overall sector, Im taking a position on both sides to see if we get a sizable report day move.

Trade Ideas

Futures-N/A

Options-Buy the week 2 soybean 1400 put/1450 call option strangle for 6 cents.

Risk/Reward

Futures-N/A

Options-The risk and cost of buying this strangle is 6 cents or $300.00 plus commissions and fees. I’m looking for a report day move in May beans below 14.00 or above 14.50. One could also offer the strangle into the report at 40 cents after its bought as just one way to exit. Call me with questions.

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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