Commentary
China has been in buying 7 out of the last ten sessions and that has supported the bean market from near term lows in the 9.55 area in my opinion. New crop demand had been running well behind normal, but some signs of life are seen with these sales into China finally. We closed this week 27 cents higher to finish at 10.00. Looking at a broader view the over the course of the growing season the bean market has been shellacked since Mid-May with November beans losing 2.70 per bushel. The weather has been near perfect. But nothing goes down forever and heading into a 3-day weekend with some uncertainties ahead I believe we are seeing some short-covering by the speculative trader and trend and index following funds over the past few sessions. I’m seeing that most of the week has been associated with lighter-volume, declining open interest sessions with higher price action. In my view technically this would be classified as a weak/counter-trend rally.
last week’s Pro Farmer Crop our may have caused the market to price in the highest yield estimate we will see, with a 54.9 bushel per acre number. The USDA is at 53.2. Do they raise near Pro Farmer in subsequent reports? We turn the calendar to September indicating that this year’s U.S. corn and soybean crops are practically made. Yes, weather can still add or subtract a few bushels in the next 10 days, but we’re not expected to see a dynamic shift in production expectations. The U.S. farmer is undersold in my opinion not liking current prices. He will want to store as much of this year’s crops as he can, but there isn’t enough storage to hold it all. He will store what he can hoping for a short crop in Argentina and/or Brazil amid an anticipated development of La Nina over the next several months. Managed money as of this past Tuesday is short 176K futures and options in beans as of this past Tuesday. That maybe a bit overstated given the last two days of price action, regardless, they have a sizable, short. I believe we are still in sell the rallies mode. This crop is a whopper in my view and demand despite the recent buying spree by China is 300 million bushels short from where the 10-year average is in early September. Therefore, it is my belief that the market will eventually trade with an 8 handle in the near future, but when? It could be in a month or in 5 months if SA weather is non-threatening and nothing bullish or a new black swan enters into the market. Therefore, I’m suggesting a longer-term bearish play that gives it time.
Trade Idea
Futures-N/A
Option-Buy the May 25 9.00 put. Sell the 8.00/9.00 call spread. Collect 88 cents upon entry minus trade costs and fees.
Risk/Reward
Futures-N/A
Options-The maximum risk is 12 cents plus trade costs and fees. This is a long-term play that could allow one to keep most if not all the collection should May 25 bean futures move to high8’s or low 9’s.
Please join me for a free grain webinar every Thursday at 3pm Central. We discuss supply, demand, weather, and the charts. Sign Up Now
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax
Walsh Trading
311 S Wacker Drive Suite 540
Chicago, Il 60606
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.