Commentary:
China is still boosting imports of multiple crops, from multiple countries, with U.S. beans a major beneficiary specifically during the August-October timeframe. Money also continues to flow into the broader commodity sector in my view. Export sales in the morning will provide more insights to whether Chinese buying is slowing after more almost two weeks of no daily USDA sales announcements, although we have had a few sales to “unknown destinations: which is spelled C-H-I-N-A. Traders are looking for new sales in a wide range of 600,000 MT to 1.2 MMT compared with 1.468 MMT last week, which was the smallest since the marketing year began Sept. 1.
Given where we are on the charts, we could see a pullback and or profit take by the funds into month end. We have had a tremendous rally of over $3.00 from the August lows. Today’s high on January soybeans is at 1189.4. 1193 was a target as it represents 25% higher on the year for beans and almost 40 percent from the Spring lows. With ending stocks so low at a 190 million bushel carry, funds will be even more hyper-sensitive to weather events ..i.e. drought due to La Nina active in the Southern Hemisphere. I view sizable dips in this market buying opportunities longer term until production and yield are more of a known in South America. That is weeks if not months away. That said we just rallied 1.45 from the Nov 12 low and over 3.00 from the August low.
I attached a monthly chart, with 1288 a target to the upside longer term as it’s a 50 percent retracement from the all-time high in 2012 at 17.97 to last years low at 781 on the monthly continuous. However we could see a pull back on profit taking from the low made at 1045 to today’s high at 1189. Half way back would be a 70 cent correction. There are multiple ways to play a potential break, but I’m going to suggest a reduced risk strategy in my view that is a static short into month end and the next govt report in early December. It uses January 21 options that expire on Xmas Eve.
Trade Idea
Futures-N/A
Options-Buy the Jan 21 11.00 put. At the same time sell the Jan soybean 10.00/11.00 call spread. Package this three way option strategy for a collection of -94 cents.
Risk/Reward.
Options- The max loss one can take here is 1.00 or 5K plus commission and fees. But one is collecting 94 cents upon entry minus commissions and fees. The risk is then 6 cents plus trade costs and fees. We are looking for a break in price that increases the value of the January 11.00 put while at the same time decreases the value of the short call spread, the January 21 10.00/11.00 call spread.
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