Since the last USDA crop report, soybeans have been trading within an 18 cent range for the last nine sessions. Pullbacks in price near the 8.70 level have largely come from an outlook of good weather for Argentina and Brazil in the 10 to 15 day forecasts. Supportive news for the bean market was news of high protein soy oil in the crush reports. Indonesian palm oil that competes in the export market against the high protein soil was reported to be down 9% this year, coupled with news that the Ukrainian rape seed crop was hit by frost cutting acres by 30%. This suggests a mindset that could lead to countries in need of high protein vegetable oil rushing in to buy soy oil to replace shortages on other high protein vegetable crops. Offsetting some of that is the current crush of soybeans to get the meal and oil is down on the year due to a mild winter brought on by El Nino in the western plains. Cattle producing States in the Central U.S. are requiring less meal into the feed ration to keep weights up. But the markets trade fear before fact. The first private forecaster came out with his soybean projection for this year with a slight increase in beans over this past year. Late March is when the planted acreage intentions report comes out. When crop forecasters get a better feel for the El Nino weather in February for the future these crop forecasts will change. Currently non-commercial trading funds are short 40,293 contracts, 31,509 less from the week prior. Support for March beans lies at 8.66 Monday and a close under sets up 8.40 as next objective. If support holds resistance is 8.96 then 9.10. Fundamentally beans remain bearish with the overall supply demand perspective. Sell short on a close under support. Technically beans are mildly friendly and could push up to the resistance and take it out over any news in the weather or an increase in demand. Stick to the charts.
Options Strategy:
In my view I would remain agnostic on a movement in prices that results to a breakout to the upside or a with a major price correction to the downside that would be predicated on weather and its impact on future yields. I therefore would consider the following trade. For a trade cost of ten cents plus all commissions and fees I propose the following. For upside exposure, look at buying the July bean 980 call and while selling two 11.00 calls while at the same time buying the July bean 820 put and selling 2 July 720 puts for a combined purchase price of ten cents.
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.
