Last week’s soybean rallies were led by several fronts.  We started last Monday, November 10th, with news out of Brazil, the world’s second largest producer of beans, their crop would be 89 million metric tons versus the last two monthly USDA estimates of 98 and 94 million metric tons or 4 million lower than their last estimate. 

Since the US and Brazil are the sole ports of origin from which to buy beans, it is common for funds to believe that what is not produced in Brazil will eventually be exported out of the United States. 

The Report

The bean harvest on Monday’s progress report showed 94% of the crop harvested and 89% corn harvested.  With six grain-producing states covered by either a heavy blanket of snow or extreme cold, the fear is we either won’t have this grain harvested before the December production report or the January report, if a meltdown does not occur allowing the harvest to finish.  This threat was equally as supportive as the Brazilian news.  Recent snows and extreme cold will lead to two scenarios. 

Two Possibilities

The first, we expect beans not harvested to lead to a bean rally into the January 10th USDA crop report followed by a correction, or a sizable break into the market into mid-February at which point a low will be posted prior to the summer growing season high. 

The second scenario would be the current forecast for temperatures rising to 50 degrees, starting this weekend, happens, producing a meltdown of snow, allowing the harvest to be completed. We would expect the final production numbers to be on the December report, meaning any rally into that report would lead to a profit-taking correction into January followed by a low that will hold prior to the summer growing-season high. 

The Trade

Regardless of how each scenario plays out I believe traders should use the break in beans as a buying opportunity, at least into December’s WASDE report.

  • I propose buying the Feb Soybean 11.00 call and selling the February soybean 1180 call for a purchase price of 7 cents or $350.00 cost per spread.
  • The risk on the trade is the price paid for the spread, plus all commissions and fees.
  • I’m looking for March beans to possibly probe recent highs in the 10.80 area after one of these two monthly crop reports.

For more information on trading grains, click here.

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.