Commentary
Strong Palm Oil demand which translates into strong bio diesel demand in my opinion has created a bid in the bean oil market recently. Drought in Canada’s spring wheat and canola fields has brought about a rally in both those markets, although canola fell today over 20 handles. Oil seed availability is tight globally and these weather fears are getting priced in right now in my view. On top of that the bean sector will remain tight for some time unless the USDA in future reports decreases crush and demand. Despite recent rains with good coverage all over the Midwest into this weekend, the soybean market looks to August as beans reach pod setting time in that month. Current weather models have areas of North and West of the Mississippi turning hot and dry again for the NW quadrant of the grain belt that encompasses a lot of bean acres. At a 155 million bushel carry, there isn’t much room for error. The USDA in their report on Monday July 12 had this to say. USDA boosted U.S. corn feed and export demand incrementally, while keeping Chinese corn imports strong at 26 million metric tons for both this year and the next. In other words, demand remains strong. Production rose because USDA held its yields at trend level as expected, waiting to adjust until the August report. It made no changes to its domestic soybean balance sheet either, suggesting that demand remains strong while waiting for the August weather pattern to determine crop size. In my view we remain in a strong demand market with tight domestic and global stocks with weather risks and question marks moving forward in my opinion. Funds love to trade the long side of the bean market in my opinion. But since early June they have shed much of their long positions as weather turned cooler and wetter for crop development. Now there’s question marks on weather as we move deeper into Summer. If we get a sub 50 BPA (Bushel Per Acre), National yield, we could get price rationing in beans. I’m going to suggest an option play to take advantage of such a move towards the all-time highs inn 2012. We are using two different months and buying and selling calls.
Trade Idea
Futures-N/A
Options-Buy the October 2021 soybean 16.00 call and sell 1 November 21 17.00 call. Suggested entry at 2 cents debit ($100.00) plus trade costs and fees.. The spread settled at 4 cents debit today.
Risk/Reward
Futures-N/A
Options-Lots of risk here. Two different option expiration’s. The long Oct 16.00 call expires on September 24th. The short 17.00 call expires on October 22nd. Therefore if not taken off as a spread when you exit , one assumes the risk of being short a November 17.00 call after the September expiry of the October option. This would happen if the underlying November soybean futures contract settles below 16.00 on 9/24. What I’m looking for a is a rally by Labor day weekend or holding this position into the September Crop report on 9/10. A hot and dry August in the Midwest is likely needed for this new crop bean market to trade near 2012 highs in my opinion. If not I’m out. Extreme caution is advised and please feel free to contact me with questions.
Please join me every Thursday at 3pm Central for a free grain and livestock webinar. We discuss supply, demand , weather, and the charts. Sign Up Now
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall not be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax
Walsh Trading
53 W Jackson Suite 750
Chicago, Il 60604