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Commentary
Soybean prices in my opinion saw significant follow through from the bullish USDA report on Friday which resulted in the market testing the early November highs. The market is heading for the 0.382% retracement to the May highs at 1057. Argentina’s weather forecast still shows shower chances starting late this week and into the weekend with a few scattered chances next week as well. However, the forecast lacks significant coverage and may not offer crop stress relief in all areas. Additional bullish news from the USDA this morning with a new morning flash sale of 198,000 tonnes of beans sold to China. Crop scouts in Brazil said frequent rains in Mato Grosso have the harvest pace at its slowest in 7 years. Marketing year to date soybean export inspections for shipment to all destinations total 1.151 billion bushels, up 210 million bushels from the previous year’s pace, and 136 million bushels above the seasonal pace needed to hit USDA’s target. That said, while delays due to rain are occurring currently in Brazil, harvest is underway in other growing areas, with a solid flow toward the export terminals expected to pick up momentum over the next couple of weeks. Brazilian soybeans priced into Chinese ports for February shipment are currently priced 84 cents per bushel cheaper than soybeans shipped from the U.S. Pacific Northwest, and $1.20 per bushel cheaper than those shipped from the U.S. Gulf. In my view, weather issues in Argentina will need to continue to appear to keep the bullish momentum. Above 1057 is 1061, 5 percent higher for year. Keep in mind funds now have a slight net long in beans, near neutral in bean oil and net short 50K in meal. If they clear near term resistances, look for March beans to make a run for 1091, the fifty percent retracement from last Mays high. If it stays hot and dry in Argentina, I look for the existing managed shorts to come out of meal and go neutral. Argentina is the World’s largest bean crusher and biggest exporter of meal and oil. Funds in my view won’t sit around short should crops deteriorate there.
Trade Ideas
Futures-N/A
Options-Buy the May 25 soymeal 340/390 call spread for 4.5 points or $450 plus trade costs and fees.
Risk/Reward
Futures-N/A
Options- If filled at 4.50 on the spread, work to offer the spread at 25 points for a 2500 collection per spread minus trade costs and fees. Meal closed at 317 last year. A ten percent move higher in the next 90 days would put meal near 350 basis May futures. Risk on a GTC stop at $2.00 which is $250.00 from entry.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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