Commentary
Soymeal and soybeans rallied on two fronts today. First, Argentina is running low on soybeans to crush while exportable supply of soybeans in Brazil are nearing sold out per Hightower. Argentina is extending its “soy dollar” program to bring hard currency into its weak economy. Still cash is starting to firm with the expectation that buyers will step in after recent price breaks to support the market. As harvest advances at 76 percent complete in the US, the markets eyes turn to demand and weather in South America. However, it is meal now leading the sector in my view, leading beans higher with a breakout occurring on the weekly continuous soymeal chart in my opinion. (See Below)
Second, Chinese importers this morning signed framework agreements to buy billions of dollars of agricultural goods (including corn, soybeans, wheat, and sorghum) from the United States, per the U.S. Soybean Export Council; they’re non-binding letters of intent, as they always are, as China can cancel sales for future shipment at any moment. while somewhat supportive today, pay attention to what China does, not what they say or sign.
As of the last CFTC report as of 10/20, funds went negative beans but not by much. Managed funds short soybeans by 2k. They are long soymeal and Soy oil to the tune of 50K for meal and 20K for oil. Trade idea below in beans looking for a push higher into the November WASDE.
Trade Ideas
Futures-N/A
Options-Buy the December 23 soybean 1290 call. Sell the August soybean 1460 call at parity or even money. ZSQ24C1460:Z23C1290[DG]
Risk/Reward
Futures-N/A
Options-There is unlimited risk here as one is short a call option with a late July 2024 expiration versus the long option that expires the day after Thanksgiving. We are buying a call option approximately 34 cents in the money, (Dec 1290C) vs selling an August option (ZSQ24 1460C) approximately $1.30 out of money. We are looking for January beans to take out last week’s highs in the low 1330’s with the possibility of a challenge to the 1355/56 area and potentially 1372 area and then exit. However, a futures close below 1293 (basis January) and I would exit the spread.
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