Commentary
July 22 soybeans have taken a small breather from the low 17.00 level seen last week. This comes as corn and wheat have been pressured on rumors of wheat emerging all of a sudden from Eastern Europe, while China has agreed with Brazil to source more corn moving forward. I included a chart of July 22/Nov 22 beans here. Despite the energy market that continues to rise, soy oil has broken through key support while meal has gone sideways. The July/Nov bean spread rallied 60 cents from the May 12th low of 1.30 July 22 over, to last Fridays May 20th high of 1.90 July 22 over. We saw the spread lose 15 cents on Monday, regain some of that loss with a seven-cent gain yesterday, then lose 5 cents today. In my opinion, the down day Monday, followed by a small rally Tuesday, which then was followed today with giving much of the prior day rally back is bearish in my opinion and may offer some opportunity to catch a move towards the May 12th low. Buying Out of the money July options may provide some cover should old crop beans drop further, however in my view the spread offers a similar risk profile. For example, a put option 50 cents out of the money in July beans costs 16 cents or 800.00. With that in mind, it is my belief that if one is going to get short, I would use the old crop/new crop spread. In this case July22/Nov22 soybeans.
Trade Idea
Futures-Sell the July 22/Nov 22 soybean spread at 1.70 July 22 over. If filled at 1.70 place a stop loss at 1.85 July 22 over.
Options-N/A
Risk/Reward
Futures-The risk is approximately 15 cents or $750.00 plus all commissions and fees. This is a two-week bet and I’m out prior to the WASDE report on Friday June 10th. If the spread doesn’t perform like I think by then, then we are simply out. Chart below.
Options-N/A
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