US Grains: Demand Driving Beans

Demand continues to support beans.  The weekly export sales report showed 407 thousand metric tons was sold last week up 7 percent from the week prior and up 15 percent from the four week average.  China was in for 180 thousand of the total.  New crop sales for 2016-17 were 339 thousand metric tons with China in for 132 of the total.  A year ago this time we were running deficits to ration the crop. Cumulative sales stand at 96.8% of USDA projections with 4.5 months left in the current marketing year. This year’s sales pace suggests the government will have to raise their export projections.  Argentina’s massive flooding due to endless El Niño rains may lose them 3 to 5 million metric tons of beans.  Because Argentina is the number one crusher of beans for its meal and soy oil it creates fear that they will have to jump in the market to buy U.S. beans to make up for the short fall.  Demand for high protein oils has China increasing their purchases in the Soy complex. So far this year they have imported 14 percent more of soybeans, 48 percent more rapeseed oil, and 21 percent more palm oil.  This time of year usually has major world buyers of beans filling their needs primarily in South America. However, adverse weather conditions in South America have created unexpected demand of both U.S. Corn and Beans. This again comes at a time when demand turns to other ports of origin other that the U.S. 

Should weather remain problematic in South America in the near term and adverse conditions affect U.S. planting and the beginning of the U.S. growing season, we will see higher prices. Should weather issues abate, then a correction and some back and fill on the charts will be seen. With this in mind, these levels are perfect for a potential strangle opportunity using July bean options. For upside exposure I would look at buying the July soybean 10.40 call while selling 2 July 11.20 calls for 1 cent, or in cash value $50.00 plus commissions and fees. For downside exposure, I would look at buying the July 9.50 puts for seven cents or $350.00.

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

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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.

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