On last Wednesday’s monthly USDA crop report we saw trimming of our 2014/15 and 2015/16 carryover soybean stocks. Old crop stocks were cut 20 million bushels to 330 bushels. New crop was cut 25 million bushels to 475 million bushels. The government has cut ending stocks three consecutive months as demand has outpaced previous expectations.
It is not over. We continue to sell old crop beans at a pace exceeding current USDA projections. Thursday’s weekly export sales report showed 164 thousand metric tons was sold last week for future shipment up 26% from the previous week. We only need to sell 40 thousand each week to meet the USDA projections. Clearly the USDA feels that even though they have cut ending stocks on recent reports we are down to numbers that are still very large inventories. This thought will have short positions in the market fat with profits covering those shorts ahead of the quarterly report on fear of how much the cut will be.
Additional reasons to look for a bottom in beans to buy or to short cover are the June 30final planted acreage report and grain stocks report. Fear will be that grain stocks will come in lower as month after month we have been selling more beans as previously projected leaving room to trim those stocks from the grain stocks report. Acreage numbers originally thought to come in higher as early talk of planting less corn and more beans because of all the rain. Current fear is we will plant less beans than previously expected.
The data
Monday’s crop progress report showed the state of Missouri at 42 percent versus the five year average of 79 percent planted. Kansas was 57% planted versus the five year average of 85 percent. The condition report put Missouri at 34% good to excellent condition versus the five year average of 67%. Kansas came in at 43% good to excellent versus 76% on the five year average. Acreage losses due to weather to date put Arkansas at one million acres unplanted, Kansas 2.6, Missouri 3.9, and Nebraska 1, for a total of 9 million acres yet to be seeded. Fear will be that 1 or 2 million acres will show up unseeded on the June 30th final planted acreage report. This draws a conclusion that though rain makes grain psychology will give way to short covering and buying ahead of the report.
The trade
I therefore propose the following options trade. Look at buying the September 10.00 soybean call and sell 2 September soybean 11.00 calls for five cents or in cash value $250.00. There are two risks on the trade with the first being the cost of the spread plus all commissions and fees. The second risk is if September futures closes above the 11.00 level at Option expiration in late August, one would be short a futures contract at 11.00 basis September. In this scenario one would collect 5,000.00 as the long 10.00 call would exercise against the short 11.00 call.
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.
