Last Thursday’s weekly US export-sales report is a weekly gauge of demand telling us how much of each grain was sold last week for future shipment.  Index and trend following funds use these reports to determine whether the US is over-selling or under-selling grain in the current marketing year. 

The marketing year for US corn and beans is September 1st to August 31st.  To date, 80% of the USDA forecasted export sales of beans have been sold, with nine months remaining in the current marketing year.  At the current pace of export sales to China, the biggest player in the world in the soybean trade, we would run out of soybeans for sale before the marketing year ended. 

The Set Up

At some point, there has to be a slowdown from the current record pace.  Most suggest that when South American crops come online in February, they will overtake the US as the global buyers’ primary port of origin in the world.  There are, of course, a variables that can affect the final numbers, such as the entire growing season and production issues that can arise. 

Last year China continued purchasing US beans right through the South American harvest, suggesting that the US and Brazil have yet to produce enough soybeans to meet their needs.  It’s too early to suggest that China will back away during the South American growing season, but we may be entering a season where exports may slow. 

There has been much talk that ports are jammed with incoming soybeans, with ships lining up 15-deep waiting to get in.  This may have led to Thursday’s poor showing from China on the export-sales report.  Total export sales were 810 thousand metric tons, down 31% from the four-week average, with China in for only 217 thousand of the total.  Last week’s purchase was China’s smallest purchase of the export season to date. 

Should the Chinese continue to slow their import pace in the weeks ahead, it could be setting us up for a measurable correction in soybeans.  Soybean strength is solely based on demand.  But the break would have to occur in the next several weeks, as final production numbers will come out in the January USDA monthly crop report with traders surely expecting a lower production in the carryover number due to the poor harvest conditions in November to early December.  We have to expect some strength to enter prior to that report. 

With possible buying coming into the January report coupled with this recent price break in soybeans of about thirty cents this week, there is now a buying opportunity.

The Trade

  • Buy the March Soybean 11.00 call and selling the March 12.00 call for twelve cents or in cash value $600.00.
  • The risk on the trade is the price paid for the option spread plus all commissions and fees.
  • March soybean resistance sits at 10.58 and above there at 10.83. It is my view that one if not both of these levels will be tested into that report.

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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.