Impressive bounce in beans and a modest pop for corn followed by recent rallies in wheat being sold into has been the theme for grains to start October and the 4th quarter. Trade agreements like NAFTA being reworked with the recent impasse with Canada now behind us has given thoughts to deals being reworked and resolved with the EU and China. After bearish old crop carry-over numbers that were reported in the USDA quarterly stocks report on 9/28, the possibility of corn and beans returning to their September lows seemed greater than they did after NAFTA 2.0 was secured early last week. Yet lower prices can till be seen down the road and I believe the trade will get a better sense on Thursday’s supply demand report. One of the questions being asked will big crops get bigger?
Corn: Lots of scuttlebutt that President Trump is going to mandate E15 Ethanol use all year long lifting seasonal restrictions. He is giving a speech in the heartland tomorrow night and this could get announced. If enacted, the effects wouldn’t be immediate but it could give corn a short term pop into Thursdays report. A trade to consider would be buying the Nov Corn 375 call for 3 cents. A fifty percent retracement takes Dec corn to 377 on the charts. The average trade guess for corn on yield comes in at 181.8 BPA vs 181.3 last month with the average guess for ending stocks at 1.91 billion bushels. Funds still short 67 K contracts as of Oct 1st. Export Sales and Inspections have been strong and have buoyed prices. Demand needs to stay that way.
Beans: Impressive bounce off of the Sep lows of over 60 cents from low to high. Funds have pared shorts and as of 10/1 sit short 42 K. They are long meal 28 K. Inspections and sales are ok for this time of year with China still buying for future shipment. What would take us higher from here? Certainly harvest weather for one which is occurring with delays due to extreme rains in the Midwest followed by a few days of frost which will hit the Northern plains and Midwest in some areas this upcoming weekend. Will it be enough to drive spot beans over 9.00 to the August highs? I’m not sure. The average trade guess for carry is 898 million bushels, with yield just shy of the record at 53.6 BPA coming in this month at 53.3. With depressed demand and ending stocks 300 million bushels over the old record, if the market can’t break on the growing excess amount on report day, when would it? Watch meal here. If it holds so will beans in my view. If meal breaks 310, look out for beans. The proper play in my view is to bet both ways. What we are looking for is increased volatility. Here is the trade which I am suggesting utilizing a strangle to have exposure on both sides of the soy complex. I am noticing old crop/new crop bean and meal spreads starting to show some life.
Buy a Dec Bean 840 put for 5.4 cents.
Buy a Dec meal 340 call for 2.5 points
Strategy cost 525.00 plus commissions and fees. Once could use Nov options on this strategy into Thursdays 11 am report for lower cost to entry. However I can envision a sizable move lower then a rally developing into November. Please call or email to discuss at 888 391 7894 or slusk@walshtrading.com.
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