Grain Spreads: New Crop Math

Sean Lusk General Commentary Leave a Comment


New Crop November beans has seen a sizable correction in the last two weeks down approximately $1.14 in that span. Overall the grain market was likely due for a correction as weather has been conducive for planting and demand  for US beans has taken a back seat to South American production. There’s also talk that China is cracking down on inflation and steeping up measures to try to restrain higher food prices. So I expect to hear a lot noise from within their Ag Industry and Government about self -sufficiency amid the reduction of imports of a myriad of commodities highlighted by grain and livestock products. The next big report in the market is just over a month out with the planting intentions report on June 30th. Biggest report of the year in my view to date as it could allow for major changes in the balance sheet, regarding production and ending stocks. The last reading on planting intentions (March 31st) was one of the most bullish in years in my view as it was a combined 5 million acres less than the average trade guess for both corn and beans. The guesstimates going into the end of June report have many analysts putting back those anticipated acres. However the potential increases seem to favor corn more than beans in my view. For New Crop Soybean, a potential increase of 1.5 million acres planted from the March 31st report and a yield around the five year average puts bean ending stocks at 135 to 140 million bushels with a stocks to usage at just 3.1 percent. It then would be incumbent to have a bin buster crop along with the USDA decreasing their export demand estimate to bring back ending stocks up to 250-300 million bushels in my view. However should weather be problematic for production with yield below 50 B.P.A., we could potentially see negative ending stocks. In my view we are going to remain tight regardless of what the acres adjustments are. If I see November or January beans continue to retreat anywhere near unchanged on the year, I’m going to be more inclined to take a shot and buy the dip. 13.11 is where we closed 2020 for soybeans. 1376 is 5 percent higher on year with 10 percent at 1442. 20 percent comes in at 15.73 and 30 percent at approximately 17.04. With some upside targets in mind, the following option strategy is suggested. November 21 beans closed at 1347 while January 22 beans closed at 1348.2 today.

Trade Idea


Options-sell the Jan22 soybean 16.00/15.00 put spread for 90 cents. 



Options-the risk reward on the option trade is 10 cents or $500.00 plus commissions and fees. One is collecting 90 cents or $4500 upon entry. The max loss or the amount one would have to give back is 5k plus trade costs and fees. The goal is to sell  high and buy back low

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Sean Lusk

Vice President Commercial Hedging Division

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