Soybean prices in 2024 collapsed on increased global production amid reduced demand for US origin that saw China increase their dependency on Brazilian origin leaving the US as a second or third port of origin for meaningful export. US exports into China hit a four-year low this past year per USDA. As of this post bean prices are down 25 Percent from last years close. If this wasn’t bad enough Brazil continues to increase planted acreage as does Argentina per CONAB. Both countries could produce if realized 20 to 25 million metric tons more than last year, with Brazil growing a record crop per USDA. Despite all the bearish talk, China has made purchases of US beans since harvest which have bested USDA expectations by a small margin which is good news. The problem is, will it continue? Brazil is staring at their largest crop ever, a bin buster. Cash prices decline there by a decent percentage and lookout below in my opinion. On top of the fact, the US has 500 million unshipped bushels according to USDA to move before the 24/25 marketing year ends September 1. One scenario I think could play out as it has in prior crop years, is that China will cancel previously made purchases opting for cheaper Brazilian supplies, leaving the US holding the bag. That shell game is bearish from a demand standpoint and would pressure prices in my opinion. If we see beans drop another 5 to 10 percent on South American harvest pressure from near 10.00 to 8.75/9.00, I’m not seeing how deferred corn trades between 4.50 and 4.70. Corn has a much different demand profile which has recently supported prices as USDA cut ending stocks a whopping 200 million bushels in the December WASDE. That’s the good news. The reality is it is my belief that the US producer is still sitting on a good portion of last year’s crop and perhaps the year prior. At some point we think those bushels will be released onto the market. Bean pressure could stimulate the selling. I keep hearing about increased tariffs and enhanced trade wars. Hard to predict if that will impact the balance sheets when China’s not buying much US grain anyway. Two trade ideas for those with unpriced bushels of corn and beans.
Soybean Trade Idea
Futures – N/A
Options – Buy the May soybean 1020 put. Sell the January 2026, 1220/1160, put spread. Collect 5 cents upon entry or 250 per three way minus trade costs and fees. ZSF26P1200:1160:H25P1000[1-1-1]
Risk/Reward
The risk here is approximately 50 cents or 2500.00 plus commissions per 3-way option strategy here. The result or success of this trade will be on what the value of the May 1020 soybean put is when liquidated. If May beans trade to the August lows or make new lows is what we are here for. The short put spread using January 26 options sold for 50 cents approximately, has 10 cents max risk and is a longer-term bullish play that is simply used to finance the May 1020 put. Margin is approximately 1675 per spread. Call me with questions.
Corn Trade Idea
Futures – N/A
Options – Buy the May 25 corn 470 puts for 29 cents. Sell the Dec 2025 corn 4.00/4.60 call spread at 29 cents. Enter into this three-way option spread for even money before commissions. ZCZ25C400:460: K25P470 (1-1-1)
Risk/Reward
Futures – N/A
Options – This is an old and new crop hedge. The maximum risk here is 60 cents plus trade costs and fees. Risk on the May puts is 29 cents plus trade costs. Risk on the December call is 31 cents. We are entering in at even money. The value of the 470 put basis May25 futures is what will determine the success of this trade. If May 25 corn drops and retests the August lows near 414, I would advise exiting the option premium between 65 to 70 cents collection. One then can decide to cover the dec 25 call spread or use it as partial hedge vs next year’s production. However consecutive closes over 4.70 and I am out with an approximate 12 to 15 cent loss and will re-evaluate.
Sean Lusk
Vice President, Walsh Commercial Hedging Services
Direct: 312-957-8103
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