Last week’s USDA crop report gave us a little bit of a surprise in soybeans. They put production at 3.808 billion bushels. This was down from the September report of 3.935 and under last year’s record crop. This came largely from a cut in yields and acres of 1.1 million acres. It also comes at a time when demand is soaring to potentially another record year of exports. Fridays export sales report came in 1.476 million metric tons with China in for 1.1 million of the total. The three weeks prior read like this; 1.284 million metric tons, 2.506 million, and 1.316 million. The demand largely from China comes from belief that this year’s weather pattern is being called the strongest El-Nino on record. This looks to bring adverse growing condition to South America as well as warmer and dryer conditions in the U.S. in the spring. That leaves the three top producer’s exporters of beans, the U.S., Brazil, and Argentina with suspect production this year. We look for China and others to be major buyers in the bean market to ensure they have adequate coverage come the New Year. I look for breaks in the market to be short lived with short covering and buying entering pushing us to new highs.
For those looking to conservatively position trade this market, I propose the following trade using July 2016 options for upside exposure. I would look at buying the July 2016 1040 call and selling one July 2016 1140 call for 8 cents or $400.00 in cash value plus commissions and fees. The risks on the trade are the price paid for the option spread plus all commissions and fees. The most one could collect on the trade is $5,000.00 minus the cost of the spread and commissions and fees.
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. Or please contact me at anytime at slusk@walshtrading.com
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.
