Last Thursday’s weekly export sales report laid out a few stories. Bean exports were 1.297 million metric tons. China was in for 1.166 of the total. Actual exported beans were 2.485 million metric tons with China in for 1.935 of the total. There was one switched amount of 726 thousand and a reduction of 392 thousand. These are large enough numbers to believe its China. But as large as export demand is for beans this week’s government report putting ending stocks inventory at 465 million bushels versus the October report of 425 had funds selling the futures. Export sales are 61% of the projected USDA forecast for the year, but with ample supplies it is weather and its impact on South American crops that will drive the market. Current forecasts have adequate rain in Brazil and Argentina. Any change from El Nino that turns hot and dry and we can expect a measureable short covering rally. Stay focused on weather now.
With this in mind I look for two scenarios in the coming months with either a sizable short covering rally or a break to the 8.00 level. As weather will be the primary pricing influence in the beans it is my view to have both sides of the market covered. I propose buying the March 940/1040 call spread for 6 cents and buying the March 800/720 put spread for 6 cents as well or package both spreads for 12 cents. The risk on the trade is the price paid for all the options plus 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 any time 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.
