Commentary
Soybean Meal has been the big mover lately after trading $309.3 last month. In our view, soymeal was oversold given the rally seen in other agricultural commodities. After rallying ten percent higher for year in the Spring, the meal market lost almost 40 percent from high to low for 2021. While technically oversold, a fundamental reason potentially sent this market significantly higher in the last few weeks. There is apparently a shortage of the amino acid Lysine, which is am ingredient to feed hogs. If it can’t be secured for feed, then soybean meal is the next substitute. That was the story last week when meal rallied into the weekend. We saw follow through today. We are also hearing wheat, canola, and meal supplies have been severely depleted due to the lower production out of Canada this year. Argentina meal stocks are said getting tighter, but that be a function of tight farmer selling in my opinion. We have started to see more US meal demand with more potential on the horizon. A lot of bullish inputs are coming are entering into the market currently for the domestic meal market.
The rally in meal is supportive of soybeans and moderately bearish for soybean oil. The demand for meal will increase soybean oil supplies. Spread traders had been using meal as the short leg of their crush trades and I’m sure the short covering in those spreads has added to the recent bullish undertone in the meal market. I included a weekly meal chart. A fifty percent retracement from this years high/low comes in a 390. December meal options expire on 11/26. Its certainly enough time for the front month meal contract to achieve that level in my view. But where to from there? How bad is the Lysine/Hog story and what implications for deferred contracts like Jan 22 or March 22 on further upside potential? Is this buy the rumor and sell the fact? If the latter, a 50 percent retracement of this most recent rally puts meal at 340. This assumes we trade up to 3.90 in the front month December. Trade suggestion below.
Trade Ideas
Futures-N/A
Options-Bid the Jan 22 soymeal puts for 2.50 or better. The trade cost if filled at 2.50 is $250.00 plus commissions and fees.
Risk/Reward
Futures-N/A
Options-the risk is the price paid of the options is $250.00 plus commissions and fees. Suggestion is to work the bid until Nov 26th, If not filled by then, cancel order. If filled in the next few days means the market is trading closer the fifty percent retracement near 390 than where it closed today.
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Sean Lusk
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