Grain Spreads: Bean Plan

Sean Lusk General Commentary Leave a Comment

In looking at the soybean market I think the best plan forward is to have a static long in the market using Nov 20 options while keeping a near term short position for old crop. It comes on two fronts. Optimal growing conditions in the near term could keep this market searching for bottom while a longer term bullish position would in my view establish a view that less beans grown here would eventually lessen global ending stocks. Global and domestic ending stocks will get priced in and traders will turn the page/focus to next years uncertainties. Let me explain. This years crop has a long way to go until finish given the very late plantings and reduction of acres that went to late planted corn acres according to the USDA. In fact we are 10 million acres less from the March report and in my view adverse late weather could erode yield and production numbers. Yields look pedestrian at best for now according to private crop scouts but those are subjective due to weather moving forward. Below is the Nov 19 soybean chart. To me it looks like the market could challenge 840 and then 826. Below that and we could retest the lows at 791. A close below 855 is needed in my view. Should we get that I would sell futures with targets at 840, 826 or 803. Stop loss over 883. However in keeping with a long term bull strategy, I would look to sell the Nov 20 soybean 10.00/11.00 put spread collecting 86 cents, minus commissions and fees. This 4 K credit allows us to buy calls, call spreads, against any short futures position one may establish. We are in my view buying next years crop, while selling this years should further support be violated. Risk is 14 cents per spread here, form the November 20 put spreads plus commissions and fees. Once could look at using the credit to buy cheap call spreads, like the July 10/11 call spread for 8 cents. If futures don’t break any further, selling a 1.00 wide put spread at 86 cents to me is a better risk reward play than trying to bottom pick futures. Sell high and buy low is the game plan here. All my opinion. Nov 20 futures are trading at 925. Call or email with questions. 888 391 7894 or slusk@walshtrading.com Every Thursday I hold a free grain and livestock webinar. We discuss supply, demand, weather, charts, and trading plans and ideas. Sign Up Now

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