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Commentary
Election jitters, possible China tariff retaliation, better rains in Brazil where planting has almost caught up versus historical averages are all reasons beans lately cannot sustain a bid in my opinion. Recent Chinese buying of US beans closes the shortfall somewhat of what the USDA projects at 1.85-billion-bushel export program. The current pace of sales for future shipment is approximately only 60 million bushels below the USDA estimate, but that gap can be closed quickly if Brazil weather turns back to hot and dry. However, should there be a mild growing season in South America, without many weather threats, then ending stocks in my opinion will not decrease anywhere below 500 million bushels, which is exceedingly high amid a comfortable stock to usage. A better indicator of where China is with demand next year may be the soymeal market. Soymeal stocks in China pushed above 1 million metric tons in the past week, its highest level in five years, easing concerns about tight supplies due to soybean unloading issues at ports. Soybean stock levels at the ports are at a high 7.8 million metric tons. China crushed a high 2.14 million metric tons of soybeans last week, up 10.7% over the previous year’s pace, mostly due to the strong flow of soybeans from Argentina and Brazil. An active rain pattern in Brazil brought an end to the drought, raising production expectations for the current growing season. The rains are thus far seen as beneficial and not problematic for the crop, increasing farmer willingness to sell on price strength. With the USA at a 550 million bushel carry and for now no weather threats in SA, the path of least resistance could be lower into 2025 in my opinion.
Corn’s balance sheet has dwindled slowly on an aggressive export pace to Mexico and “Unknown Destinations”. Offsetting the increase in demand is a 24/25 corn crop that keeps growing with every monthly supply demand report from USDA. I think corn export demand will ultimately win the day here, but that victory may not be realized until well past harvest. Lots of “ifs” and “maybes” here but I would consider the following hedge trades described below if I was storing corn or beans in the bin. My strategy locks in $10.00 in beans out to late April using May 25 options, while locking in $4.50 in corn out to late April using May 2025 options. Detailed explanation below.
For soybeans I am selling 40 cent wide put spreads at 35 cents. I’m utilizing next year’s bean crop, January 2026, 1240/1200, put spreads for 35 cents, where the max loss is 5 cents. I am doing that to finance to put a floor at 10.00 May 2025 puts, that provides protection at 10.00 until late April 2025.
Corn I’m suggesting different months. Buy the May 450 puts for 30 cents. Sell the Dec 25 540/500 put spread for 34 cents. OB. I am trying to finance the May 450 puts at even money by selling the put spread further out on calendar that gives the opportunity long term to buy back the put spread cheaper from where I sold it, and at the same time locking 450 on the May 25 board for what one might have unpriced in the bin. I’m collecting $200 from entry minus trade costs and fees.
Beans
Lock in $10.00
Basis May 2025 soybeans
Buy the May 25 10.00 puts for 35 cents. Sell the January 2026, 1240/1200, put spread for 35 cents.
Risk: The max risk here is 40 cents or 2K per spread plus all trade costs and fees.
Corn
Lock in $4.50
Basis May 25 corn
Trade Idea
Buy the May 450 corn puts for 30 cents. Sell the 5.40 vs 500 Dec 2025 corn put spread for 34 cents. Cost to entry is a four-cent collection money minus trade costs and fees.
Risk: After the 4-cent collection, the max risk here is 32 cents or $1600.00 per spread plus all commissions and fees.
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Sean Lusk
Vice President Commercial Hedging Division
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