Last Thursday’s weekly export sales report showed 1.797 million metric tons of beans were sold for future shipment. That was up 39% from the week prior and 43% over the 4 week average. China was in for 1.644 of the total. We saw 607 thousand metric tons switched from another U.S. port and a reduction of 353 thousand. These are large numbers and probably from China. Actual exports were 2.271 million metric tons with China in for 1.747 of the total. This shows that China is in buying beans with both hands and taking delivery with both hands. Usually they buy U.S. soybeans this time of year for two reasons, one need, and two a hedge against poor growing conditions in South America. Why the big sale out of the blue? Sunday night, the Argentine government had a runoff election. Argentina is the number three bean producer and exporter and number 1 soy meal/oil crusher in the world. The current government had a 35% tax on beans, 20% tax on corn, and 23% tax on wheat, making them cost difficult to export. With the opposition Party winning the election they are considering a 90 day period of no taxes on grain exports. The first month will be a 0% tax, the second a 15% tax and the third month back to the 35 % tax that the incumbent party had levied on soybean exports in the year prior. Noncommercial funds are short 47,000 contracts, trend following funds are short 78,000 contracts, with the record short at 92,000. The initial bearish reaction off the election results resulted with a sharp drop in the price of beans. However there was speculation that the initial impact will be to rotate more corn and wheat with soybean acres. The soybean market rallied 25 cents from the early Monday morning low as these funds are fat with profits thus putting the market in a position for a short covering profit taking rally.
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 anytime at 888 391 7894 or 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
