Commentary:
Included in this post is the Nov 20/21 soybean futures spread. We have been commenting and following this spread for sometime, showing upside resistance and targets that we thought would be tested should soybeans rally. Beans and Corn suffered very weak closes today as a result of increased rain chances in the forecast in both near and long term outlooks that are anticipated to benefit crop development and increased production in my view. The weak close comes after it was revealed that China bought another 69.4 million bushels of U.S. corn and 4.7 million bushels of U.S. soybeans – both for delivery after September 1st or new crop shipment. It is a record one day purchase of corn into China. This demand news wasnt enough to lift corn today, while beans which were up 5 to 6 cents most of the session, eked out a small gain of 2 cents for the day. There also was additional supply side news for beans today, regarding demand in Brazil.
Citing a Story from AgriCensus today: In January-June, Brazil acquired 379,100 mt of soybeans from Paraguay, up dramatically from 80,600 mt in the same period of 2019, with Paraguay exporting a total of 3.96 million mt of soybeans in the first six months of 2020, up 8.5% on the same period in 2019. “Although Brazil has had a record soybean campaign, almost all of its soybean is being exported to China. Due to this, Brazil increased purchases from Paraguay for domestic consumption.
In short you have Brazil buying beans from Paraguay because they committed or oversold a record amount to China and could possibly be short, along with the Chinese buying sizable and for at least today a record amount of US corn for a 1 day purchase. It confirms to me at least that weather rules in a supply side driven market and that the confidence in these rainy forecasts are strong into month end. in my view its why funds discarded the demand news for now. Below is a chart of Nov20/21 beans. You will notice the gap was filled here on 7/6/20 at 14 cents Nov 20 over. Since that high, the spread has lost 18.6 cents from high to today’s low. Should beans move lower, I look for this spread to drift to more of a carry. However I think this spread is a buy at 6 cents Nov 20 under. August is the key weather time for beans and with Brazil buying cargoes from their neighbors tells me potential shortages could be seen later this year, or at the very least, that the fear of shortages will emerge creating a potential bid in the market.
Trade Ideas
Futures-Buy the Nov 20/21 soybean spread at 6 cents Nov 20 under.
Options-N/A
Risk/Reward
Futures-The stop loss should be placed under the low from last year at 17 cents Nov 20 under. That risk is approximately 550 dollars plus all commissions and fees. I would stick an offer at 25 cents Nov 20 over, if filled the gain would be 31 cents. This is just one idea to long soybeans on a dip. I have plenty of others should you want to discuss.
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