Commentary:
In my view we will need to see hot and dry conditions develop into July and August for a soy complex rally. Planting and emergence so far has advanced rapidly into June for beans. Last week provided some hope as prices rallied about 40 cents from near term lows. We have stalled the last few days in the bean market, but it is my belief that is due to recent longs booking profits amid light farmer selling ahead of Thursdays (11 am cst) crop report. Last weeks push higher was aided in some part to shorts bailing ahead of the USDA report. China also hasn’t been in buying as they were last week so far. Rains moving into the grain belt from Tropical Storm Cristobal should aid development as soybean emergence bests five year averages. One spread I like playing is the Nov 20/ Nov 21 soybean futures spread. Ive previously seen 50 cent to 80 cent moves in this relationship amid volatility and uncertainties with planting and growing conditons. Today the spread rallied 5 cents with outright soybean futures down just 1.4 cents. There is a gap on the chart approximately 17 cents higher from today’s settle at 3 cents Nov 20 under. Some forecasts have La Nina type conditions entering into the July/August timeframe which translates to hot and dry in the Midwest should the forecasts verify it. If the heat is accompanied by timely rains, then I could see spot beans trade with a 7 handle in front of them. I like the spreads here due to the risk/reward longer term as it wont take much of a weather scare to drive funds to the long side of the market in my opinion. Tight stop loss is advised. If beans rally I look for the gap on the chart to be tested and then for the Nov 20 contract to trade to a sizable inverse versus the Nov 21 contract. Mother Nature and its impact on future yields will likely be the decider.
Trade Recommendations:
Futures-Buy the Nov 20/21 futures spread at 6 cents Nov 20 under into Thursdays report.
Options -N/A
Risk Reward
Futures-Use a stop loss at 14 cents Nov 20 under. Risk is 8 cents or $400.00 plus trade commissions and fees. A rally in my view will take us to the top level of the gap at 14 cents Nov 20 over. If we can close above that level, the spread in my view can rally to the highs of the year at 33 cents Nov 20 over.
Options-N/A
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