Commentary
The balance sheet for beans doesn’t appear to be as tight as it was feared a few months ago. In my opinion talk of “Price Rationing” has been eliminated from the conversation due to ending stocks below 120 million bushels not in anyone’s balance sheet calculation anymore. Last week’s surprise on farm stocks that magically raised yield on the 20/21 crop which resulted in the USDA adding 81 million bushels to the balance sheet. This may have been the final nail in the coffin regarding a return to the Spring highs for new crop Nov 21 beans near 15.00. The average trade guess for Tuesday’s 11 am report is coming in at 300 million bushels. The range in guesses is wide from 163 to 373. Last month the USDA came in at 185 million, which is still relatively tight. However last weeks report coupled with a potential slight raise in yield above 51 bushels per acre could push ending stocks to 300 million and maybe even higher. The USDA has thrown many curve balls the last three years both overtly bullish and bearish versus expectations. They could come in Tuesday and lower yield below 50.0 BPA and production to the low end of estimates at 4.37 billion bushels. Or they could raise demand and crush to offset much of the recent increase of 81 million bushels from then 20/21 crop. The point is to expect the unexpected. Recently the bean market has received support from the bean oil sector. Demand for bio fuel and vegetable oils is increasing globally and supplies are tight. The bean oil market is following crude oil and energy products higher in my opinion, making soy oil the leader for the soy sector. That said, should ending stocks come in near expectations of around 300 million bushels, is it enough for funds to press the downside and challenge 12.00, if not 1180 on the charts? I remember when beans had ending stocks near 400 million bushels and futures prices at or below 9.50. With that rationale, we could eventually see a deeper correction potentially. Timing like everything else in trading is the key here for me. The near term low is 1230. That level represents a 50 percent retracement from the 2019 trade war low to this year’s high. Ten percent down for the year is 11.80. Below that level and the market could potentially crater down to 11.25 in my opinion. Technically the market doesn’t turn bullish until we get over 13.00 next week. I think to really turn friendly for the bean market, In my view 13.12 needs to be surpassed as it represents unchanged on the year. Trade recommendation into report below.
Trade Ideas
Futures-N/A
Options- Buy the Nov 21 soybean 12.00 put for 3 cents OB into report.
Risk/Reward
Futures-N/A
Options-The risk is the price paid for the option which is 3 cents or $150.00 plus commissions and fees. If filled at 3 cents, I would offer the option to sell at 40 cents which would collect 2K minus trade costs and fees.
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Sean Lusk
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