Grain Spreads: The Crying Game

Sean LuskGeneral Commentary

Every year, we export a tremendous amount beans to China.  Last year was $14 billion worth and this was the largest single export from the U.S. to China. Therefore the fear here is that alot of these sales could be whisked away for some time until a new deal is constructed or tariffs get cancelled or postponed. That is the noise in the market and it has been deafening on this break. Tariffs hurt both countries in different ways with each side looking to claim victory. One comment here or a tweet there can alter market direction in the near term quickly. For example, the Trump administration placed restrictions today for foreign entities doing business with the US forbidding them to buy Iranian Oil. The result was a $3.00 rally in spot crude. Such events entering into the market can change the direction in a New York minute. We could see the same type reaction in the grains. Those looking to step into the market on this dip need to do so with caution. Tight stops should be placed with all trades. A push under last weeks low in beans, could push it to 780 on the charts. Nobody was predicting that at the end of May when we were at 10.50 basis July. But if the fear is that our biggest buyer could be absent from the market in the near future, the carnage could continue. Major report this Friday on acres for corn and beans. Would the USDA dare lower acres on both to spur buying? That would be the report day surprise. The ultimate savior for prices here will be weather. It rained again in Chicago and most of Northern Illinois last night which is an all to familiar refrain. We have seen the wettest May-June in decades. Its going to get hot across the Midwest with the question being will rain accompany it in July?

Trade idea: Strangle. Buy the Sep 820 bean put for 4 cents. Buy the Jan 19 10.00-11.00 call spread at 11 cents. In my view both could hit.

Looking to scalp corn: Buy the July 19/Dec 19 corn spread at negative 3. Stop at negative 7. Target 12 over.

Wheat : Buy the Aug 460 put/Sep 530 call strangle for 10 cents. Risk to 5 cents. Obj. to 25 cents.

 

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