Grain Spreads: Last Supply Side

Sean LuskGeneral Commentary

Pre-report estimates and average trade guesses ahead of tomorrow’s 11 am central time WASDE report come in as follows. The average US November corn yield estimate is 180.0 BPA with the soybean yield at 52.8 BPA. This would be down .7 BPA from October on corn and down just .1 BPA in soybeans. There is noise in the market that record or near record amounts of October rainfall and several strong wind storms caused an even larger US corn and soybean yield drop. The average trade guess for wheat has US ending stocks coming in at 958 million bushels versus 956 in October. World ending stocks are expected to decline to 259.45 million tonnes from 260.18 million in October. Not big revisions regarding the average trade guesses for all 3 grains. I think the trade will be focused on world numbers for wheat more than the domestic carry. Russian exports have been more than aggressive up to this point in the marketing year giving thoughts to export quotas being enacted soon. While these could be announced at anytime, rallies maybe capped until something is announced unless we get a surprise number tomorrow. A surprise number under 258 million metric tons would spur this market higher on report day and into the weekend. A number over 261 would likely have the opposite effect and send the market spiraling under the 5.00 handle for both Kc and Chicago. Ending stocks for beans look to come in record large to nobody’s surprise. The key here will be how the USDA sees future demand. That’s paramount now as a bearish ending stocks surprise of over 950 million bushels to 1 billion would weigh on price in the near term. Potential trade deals and weather in the Southern Hemisphere will drive price in beans following tomorrow’s report. In my view, tomorrows report is the last major supply side report for 2018.

Technical’s Jan 19 soybeans: Support is 875. A close under and its 850. Under 850 its 822. Resistance is 892. A close over and its 915.

Dec 18 Soymeal: Two levels are key for me with the first being major trendline support at 3.06. A close under and its last years lows at 293.  A close over 322 is needed to see 329.2 and then 338.

Dec 18 Corn: Support is 363.2. A close under and its 355.4 and then 353.4. (Major). A close under 353.4 and its 343.6. Resistance is 373.6. A close over and its 379.2 a close over and its 389.

Dec 18  Chicago Wheat: Note- funds short 47 K contracts as of Oct 30 per COT Data. We have seen some short covering since month end but the short length is still ample. Support at 5.03. A close under and its 488.6. Under here its katy bar the door to 462. Resistance is 517. A close over and its 529. (200 day moving average). A close over here and 544 is next.

All my opinions here and if someone is looking to trade into the report, consider beans and bet both ways.  Jan beans found support at 845-850 which was last weeks low prior to the Olive branch offered by President Trump to China on trade. 3rd quarter highs are just over 920 dating back to 7.31.2018. These areas to me are realistic levels the market will retest at some point prior to January option expiration on 12/21. I would wager that we are not going to kick around 870-880 for long and trade sideways.

With this in mind buy the Jan 840 put for 6 cents. For upside exposure, either buy the Jan 920-960 call spread for 5 cents or buy the March 19/Nov 19 futures spread at a 39 cent carry. Near term lows on this spread at 42 under. Call me with questions or for other strategies. 888 391 7894 or email me at slusk@walshtrading.com

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