Grain Spreads: Long Term Longs to consider

Sean Lusk General Commentary Leave a Comment

Soybeans and Corn are in search of bottoms here and that’s not unusual for the latter half of August in my view. This year could be different because of the late planted crops that will likely need optimal September weather and perhaps for some acres early October acceptable weather to finish this crop. Crop tour results will be in focus into the weekend as will longer term two to three week forecasts into September. As China was in buying US soybeans last week for future shipment, it was noted that this week China has been active booking 10-12 cargoes of Brazilian soybeans for October. FOB prices are rising and the Brazilian premium vs the US Gulf has reached close to $1.00/Bu. China is 50-60% booked on Oct crush according to the Street. This in my estimation held Beans firm as well as the rally in soy oil today. In my view, there are reasons to consider to establish positions in both beans and corn longer term. In my view buying next years crop at these levels. What I would consider is using 80 to 85 percent collections on a option strategy where you are putting at risk the remainder 15 to 20 percent. For example:

Dec 20 Corn: Sell the 4.00/5.00 put spread collecting 80 to 82 cents plus commissions and fees. Risk is at 1.00 at option expiration. Use the collection to either hedge old crop or to buy cheap call spreads next July/Sep.

Nov 20 Beans: Sell the 11.00 put and buy the 10.00 put Nov 20 beans at 85 to 87 cents. Risk is 1.00, so depending on the fill price your risk maybe 13 to 15 cents. Again use the over 4 K collection minus commissions and fees to protect the 12 to 15 cents of risk or to buy cheap calls or spreads.

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