The soybean market appears to be willing to wait for additional harvest data before deciding how low is low. The trade realized that it may have gotten ahead of itself in its yield determination with the corn harvest less than 15% and soybean harvest less than 5% as of Tuesday September 24.   

Normally, the market needs to see the harvest at 25-33% to have confidence in any existing yield trend. Yields to date have been stellar, but trade data yesterday suggested that traders may need to see some additional harvest progress to have high confidence. This is part of the reason for the markets willingness to stabilize awaiting fresh yield data.

However, negative technical charts, favorable weather for harvest, and increasing volume and open interest on the recent sell-off in beans still favor the bears. It is important to note that Commitment of Traders data is showing a record speculative short position and the market is already down $1.07 off of the September high. November soybean volume hit a five day high this past Monday, while open interest continues to rise. The market continues to push soybeans lower as they are seen overpriced relative to corn. November soybeans found support near 934 on Tuesday September 24, which is the 62 percent Fibonacci retracement of the 1999 low and 2012 high.

With both daily and weekly soybean charts approaching oversold values seeing the relative strength index (RSI) near or at 20 combined with record net short positions in the market, it is my view that the market is ripe for a technical correction. Keep in mind, month and quarter end are next Tuesday along with the release of the quarterly grain stocks report from the USDA. This could spur some additional short covering in the market.

Trade Idea

I therefore propose buying the November Soybean 10:00 call for 3 cents or in cash value a $ 150.00. If the market can rally into month end, the cost of the call option should most likely increase in value to anywhere from 5 to 10 cents premium, in my opinion. The risk on the trade is the cost paid for the option plus all commissions and fees.

Webinar

For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.