Grain Spreads: Old Crop Corn/Beans

Sean Lusk General Commentary Leave a Comment

Commentary

The corn crop roared back after steep losses this morning. Beans though fell to two week lows and below the 20 percent higher for year threshold at 15.73. July beans fell 36 cents while new crop November fell 30 cents. Basis and cash prices for soybeans have fallen in both Brazil and Argentina as harvest advances. Also pressuring the market near term has been the pullback in soybean oil. It hass dropped 400 points from the 70.50 high in the July contract. Funds have been long both and  have been adding bull positions since the bullish March planting intentions report. We reached midpoint of the 2nd fiscal quarter Friday. Managed money and hedged funds leaning heavily one way or the other will sometimes unwind positions essentially taking profits around this marker, then rebuy lower in my view. We may have seen a little bit of that in corn today , but not in beans. The bean market is tighter regarding ending stocks here in the US versus corn. However Corn has the demand story. Before the market opening this morning, USDA reported private exporter corn sales for a ninth consecutive session. Private exporters sold 1.36 MMT of corn sold to China for new-crop delivery. Daily sales to China every day since May 7 now total 9.52 million metric tons. (380 million bushels approx.) Interestingly July corn has pushed out to 1.20 over new crop (Dec21).  The question moving forward for me is will old crop contracts, July and Aug soybeans, or July corn trade up to where May contracts rallied to? We are talking 7.75 May Corn and 16.75 in beans. What’s changed? Domestic old crop supplies are very tight and the old crop corn and bean contracts are still trading at big inversions versus new crop. I included an August bean chart, with some upside targets that maybe retested or surpassed. Call me with questions. One simple strategy here that is defined risk.

Trade Idea

Futures-N/A

Options-Buy the August 16.00/17.00 call spread for 10 cents OB. The call spread settled 13 cents today , so we need to see a pullback in price to get filled at the suggested entry.

Risk/Reward

Futures-N/A

Options-if filled at 10 cents, the risk is $500.00 plus commissions and fees. I would put a sell stop on the spread at 4 cents, risking approximately 6 cents or $300 plus trade costs and fees. I’m looking for old crop to eventually shrug off this break and anticipate the potential for the market to retest the highs. Should that not happen by 4th of July weekend, I advise getting out.

August 21 Soybeans

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