Grain Spreads: Points on the Map

Sean Lusk General Commentary Leave a Comment

I have been reading and watching over the last 36 hours many pre-report USDA guesses and subsequent game plans regarding the grain trade for the next 30 to 60 days. Eerily they are all the same. Buy any spike dips in corn and beans as the anticipation is that funds will buy the next dip in both on a report day spike low and then short cover. Lets examine. Managed money in corn sit at 67 K short as of last Friday while beans sit at 43 K short. Funds have been long meal since February and are now long 28 K. Funds can easily build more in the soy complex short amid weak demand while short covering in corn amid strong demand. Corn could gain on beans moving forward. Trade the charts for direction is the best course of action. Expectations for tomorrows report has big crops getting bigger. Any surprise would likely be friendly for price. Eschew the talking heads and noise in the market and focus on the technical’s is the way I would play it. Dec corn has major trend line support between 352.2 and 351.4. This area needs to hold or funds will push it to 342.6. A close under here and its last years low at 336 then 323. Major resistance is at 369, a level we were just at previously where the market just couldn’t take out. We close through that level this week or next, the market pushes to half way back on the year at 377. It gets interesting over half way back as the market amid short covering could push to 389.

Beans-For November, 835-837 is support that needs to hold or I think the funds push to 810. If 810 can’t hold, my target would be down at 20% lower for the year at 765. 1st weekly Resistance is up at 863.4. We close just below this level on Tuesday 10/9/18. A close above and next weekly resistance is at 888.6.  A close above there and its 915. Given today’s action in equities, don’t rule out anything. Meal has major trend line support at 3.04. If it can’t hold its 295-296. Under that its 260 basis December. 318.3 is where we started the year for those keeping score, but there’s nothing major to the upside this week until 327. A close over here and its 342.

Wheat-here is the market I would take a shot to the upside prior to tomorrows USDA report. Heading into the last two USDA reports, the fear among funds was for a bullish report regarding global ending stocks and stocks/usage. The result was bearish numbers vs. expectations. Thursday’s report (10.11.18) has the trade looking for bearish ending stock numbers in line with the last report at 261.4 million metric tons for global carry-out. In my view the USDA has been too optimistic with higher than expected wheat stocks in Australia, Russia, and South America to name a few. I think there maybe an opportunity that if we see a number below 259 MMT, potentially coming in at the 256-57 area, that wheat will push higher amid smaller global numbers and lower stocks to usage and give us the numbers that the bulls were looking for last month.

Trade to Consider:

Buy the November KC wheat 540 call for 3 cents OB. Cost of trade is 150.00 plus commissions and fees.  A close in December 18 Kc wheat over 531 is needed in my view to turn the market higer where this option could  “get in the money”. I think if we get this bullish setup that the market can push to 561 quickly. Just my opinion here but to me this is a good risk to reward trade.

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