Commentary
Beans dropped 11 cents on January and just over 8 cents in the deferred contracts in March, May, and July today. Soon the rubber will meet the road given that ending stocks could potentially continue to be raised by USDA amid a bigger
US crop while a plentiful Brazilian crop gets all China’s attention in the weeks to come possibly. It’s one scenario that could play out. Wheat and corn though continue to be supported on dips with the energy complex stabilizing after Crude Oil’s free fall post-thanksgiving. Hot and Dry weather enters into SE Brazil and much of Argentina in La Nina type fashion similar to last year. Therefore the dip buying in corn and wheat as much as a potential small weather premium building in the soy sector has held beans above 1250/1260 in the deferred contracts. Demand will eventually be the price driver for beans in my view and with-out a weather hiccup continuing into 2022 in South America, I’m having a hard time seeing a continuation rally in the February/March 2022 time frames. Unless we see wheat and corn and a continued rallies in energy that ensues in 2022, I would posit a longer term bearish soybean strategy in 2022 is worth consideration. Trade idea below.
Trade Idea
Futures-N/A
Options-Buy the July 22 soybean 11.00/10.00 put spread for 7 cents OB. Work as a GTC or Open Order.
Risk/Reward
Futures-N/A
Options-The risk on the trade is the price paid for the put option spread, which is 7 cents or 350.00 plus all commissions and fees. I have more ideas that are closer to the money and more aggressive, but this strategy given the risk/reward ratio plus over 6 months of time mitigates the risk of bullish USDA surprises in my view.
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Sean Lusk
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