Commentary
The November WASDE release from USDA was seen as bearish as corn and bean yields were raised more than expected in my view. For beans, USDA raised its soybean crop estimate 25 million bushels from the month prior as yield came in at 49.9 BPA vs 46.6 last month. Prior to the report the market saw demand pick up from flash sale reports form USDA. USDA reported daily soybean sales from Nov. 3rd to the 9th totaling nearly 3 million metric tons to China and “unknown destinations.” It is my belief that the increase of demand came amid increasing concerns about the Brazilian crop, with the country’s growing season off to a delayed and erratic start given hot and dry weather. Despite the surge in buying, we saw beans rallies stopped cold this week at the 1380 area. Pre report yesterday showed Jan 24 beans approximately 30 cents lower than the prior day high. Post report saw a bearish response and a weak close but still holding trend line support in my view as front month soymeal contracts continue to hold support. Soymeal has been a big catalyst for the October /Nov soybean rally of approximately $1.35. Meal has rallied from 3.66 to 4.64, a whopping 98 handles. Why? Argentina is said to be out of beans to crush, and they are the number one bean crusher in the World. They have been importing beans from Brazil increasing the amount from 2 to 3 million metric tons during years when they need to export versus 10 million metric tons this year. The last two crop seasons in Argentina have been crippled by drought as La Nina effects were unrelenting and severely dropped production of corn and beans. Hence the increase in imports and as a result US meal sales have exceeded expectations the last two crop years. Where to now? Trade the charts in beans. (See below) I think managed funds who are defending their longs in front month meal will use this latest price break in beans as an opportunity to re buy the market as bean harvest in the US is all but complete. (See chart below) More importantly if Brazil stays hot and dry through November as some weather scouts say is possible, funds may add to their longs with the target price being 14.03 in my opinion, which represents a 50% retracement from the 2023 high/low for beans. Support for January 24 beans through next week comes in as follows. Initial support is 1343/1341. A close under and the market tests 1317, which represents a 50 percent retracement from the Oct/Nov or 30-day high low. Below this level and its trend line support at 13.06, and if that doesn’t hold its 12.95. Resistance is 1364. A close over and its 13.77. A close over 13.77 and it’s a target of 14.03/06.
Trade Ideas
Futures-N/A
Options-Buy the Jan soybean 1350 call while at the same time sell the July 24, 1520, call. Work the spread to enter in at a 2-cent collection. ZSN24C1520:F24C1350[DG]
Risk/Reward
Futures-N/A
Options- there is unlimited risk here as one is short a July 1520 call option that expires 6 months after the long option expires. Therefore use 10 cents stop loss GTC once entered, or one may exit a on close below 1340 Jan beans. As one enters as a spread one should exit as a spread. Call me with questions.
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Sean Lusk
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