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Commentary
Oil Share and bean oil futures led the soybean complex with crude oil prices underpinning the enthusiasm for biofuels again. July soybeans rose 7 3/4 cents to $11.97, near the daily high and closed at a six-week high close. July soybean meal fell $3.60 to $323.80, nearer the daily low. July soybean oil gained 160 points to 74.12 cents, near the daily high and hit another contract high. Crude oil rallied nearly 8% with no advancement in Iranian talks and Pres Trump hinting at further operations in Iran. Bean oil rallied in the front months and deferred months alike, and the RIN market hit $2.00 to coincide with the continued perception that US supplies will be insufficient in meeting the EPA’s RVOs. There is more noise in the market in my view echoing that energies stay higher for longer. If this happens, it is my belief that the most undervalued contract on the Board is new crop meal. When the calendar flips from Fall to Winter, we sometimes see meal demand for feed increase at the expense of bean oil amid the oil share trade. Its early for now, but any pressure meal might feel moving forward in my opinion, would be felt in the front month contracts and not the deferred. Currently Bean oil has led the complex higher and for quite a while. That said, nothing goes up or down forever, and with funds record long bean oil, we will see a lightening up or flip eventually. Trade idea below using deferred meal, January 27 options.
Trade Idea
ZMF27C360:P360:410[3P]
Futures-N/A
Options-Buy the January 27 360 call. Sell the January 410/360 put spreads. Bid negative 40 points on this strategy, to collect 4K upon entry less trade commissions and fees.
Risk/Reward
Futures-N/A
Options-The maximum risk on this strategy is 1K plus commissions and fees. One is collecting upon entry is 4K less trade costs and fees. We are looking for deferred meal to break out eventually on a few fronts. 20 percent higher on year is achieved, we will look to lighten up or exit the strategy keeping the collection being the goal. Margin is $692.00
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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