Commentary:
The average trade guess for old crop soybean ending stocks comes in at 577 million bushels versus 580 last month. New crop ending stocks (2020/21) come in at 426 million bushels, up about 20 million from the May estimate. With new crop ending stocks for both World and the US in decline, it may not take much in the way of some minor weather hiccups to ignite buying form speculators and funds. In my view per the last COT report, managed money funds are holding a light long position in soybeans of approximately 20K contracts. For soymeal however, some recent light buying has pushed funds from a 49K short to a short net position of 45K in my opinion. It makes sense for funds to hold a sizable short here given the excess meal and corn supplies amid tepid demand. Per the Pro Farmer website, clinical trials are underway on a potential Chinese vaccine against African swine fever. In tests conducted since March on around 3,000 pigs across three locations, the virus appears safe, reports Xinhua news agency. Those pigs are neither shedding nor transmitting the virus, the news agency reports. Whether one wants to believe or take this seriously from a Chinese state media agency is up to the individual, but a long term play in soymeal may not be a bad idea given the funds position. It could turn into a classsic “buy the rumor sell the fact” type situation. ASF going away could in theory increase meal demand and crush margins in China making meal more attractive than than Bean Oil in my view. I included a Dec 20 Meal Chart. We have bounced slightly higher on short covering from 290 to 298. My upside targets for a rally are up at 324 and then 336.
Trade Recommendation:
Futures-N/A
Options-Buy the Dec 20 Soymeal 320/350 call spread for 3.5 points or $350.00 plus commissions and fees.
Risk/Reward
Futures: N/A
Options-The risk is the price paid at 3.5 points plus commisisons and fees. The maximum one could collect is 3K minus trade costs and fees. This strategy is a static long in the meal market though summer. There are other ways to go long here that are more aggressive but given the current enviroment, I would opt for a defined risk strategy that doesnt eat into too much margin
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