Grain Spreads: July21/Nov21 Soybeans

Sean Lusk General Commentary Leave a Comment

Commentary:

If I am looking for a type of hedge or even a speculative play at these lofty levels for beans, I may consider looking this old crop/new crop spread. the demand for US beans has been insatiable by China. They bought again this morning and have been buying either beans or corn seemingly every day since the start of September. This morning’s announcement from the USDA’s daily export sales reporting service announced private exporters sold 132,000 metric tons (MT) of soybeans to China and another 126,000 MT sold to unknown destinations, both for 2020-21 delivery. Unknown is spelled CHINA for those not aware. Meal is soaring as U.S. processors take some seasonal maintenance. Export demand is improving as Argentina crush has slowed and speculators are actively unwinding previously established long soyoil/short soymeal spreads. Soybean oil’s share of the crush has plummeted from 36.4% at the end of August to 32.1% today. Strong demand amid Brazil being sold out of beans could keep any dips in the soybean market short-lived. However potential harvest pressure, month and quarter end profit taking, and the quarterly stocks report could provide further pressure in the bean and corn markets near term. I wouldn’t be shorting the front months outright futures contracts at this point in soybeans. Normally I think you would, but this year is different. Given we finally have an edge in the export market in the near term as Brazilian supplies are depleted, anything that enters into the market that is deemed bullish from a supply side standpoint, i.e.(lower production/yields at harvest) could create a squeeze in the front month contracts. That is a big “if” being that the common thinking at harvest is that there is a growing abundance of supply. For a trade into next week’s report, consider this trade. Sell the July 21/Nov21 soybean futures spread and use a tight stop.

Trade Idea

Futures-Sell the July21/Nov21 soybean spread at 58 cents OB. Risk 7 cents from entry with a stop loss at 65 cents.

Options-N/A

Risk/Reward

Futures-the risk is approximately 7 cents or $350.00 plus commissions and fees. Im looking for a move towards the 50 percent retracement level at 27 cents July 21 over for a gain of 31 cents. One would be advised to move their stop loss to a break-even level or book profits should this spread trade back to less of an inversion.

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