The last two export sales releases for Soybeans have been a tale of two numbers. The export sales report last Thursday showed how many beans were sold for future shipment and how many were canceled or switched to other ports of origin. Looking back to Thanksgiving week, those sales were 1.173 million metric tons with China in for 751 thousand of the total. It showed that an unknown country, probably China switched 512 thousand to another port and a reduction to an unknown of 255K. Last week’s report had a total of 878 thousand with China in for 521 of the total. Again there was an unknown country that switched 439 thousand and canceled from an unknown destination totaling 399 thousand. What we have seen here is a decline in the primary export numbers in the last two weeks and large totals switched or decreased suggesting that China is getting ready to buy from Argentina. Argentina’s election has the current government suggesting they will lower the tax on soybeans from 35% to 5% as of December 10th, offering more beans at a better value. This is bearish from a demand perspective. On the bullish side, non-commercial funds came in short last week 48,000 contracts, trend following funds short 83,000 contracts close to the record of 92,000. Funds are heavily short this market and fat with profits to take ahead of the December 9th USDA crop report. We saw a notable rally last week with shorts covering booking profits. The first two days this week saw longs book profits ahead of a potentially bearish report. A bearish report would result in a sharp drop in the market as the demand side weakness prevails near term.
For those looking for downside exposure or protection, I would propose the following trade. I would look at buying the February 2016 Soybean 850 put and while selling 2 Feb Soybean 8.00 puts for 5.4 cents, or in cash value $275.00. The cost of the trade is the price paid for the spread plus all commissions and fees. The risk here is that the strategy calls for selling an extra put. Should the underlying March futures settle below 8.00 at option expiration, if exercised, one would be long a March soybean futures contract at 8.00.
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.
