November soybeans have now rallied $2.00 since March. Ninety percent of the rally is weather related. The concern here is that excessive water from El Nino is preventing planting from occurring on time and there is much talk that it is going to turn dry and therefore we may be in for a warm dry season. The latest crop report showed a dramatic drop in carryover stocks of twenty five percent, the question now is, is that the beginning of further declines to come?
The market needs to ration itself now very carefully until it decides if the worst is over or not. Until then, there will be big swings in the market. Soybeans came in planted 36 percent this week versus the ten year average of 31 percent. However short and long term forecasts are calling for continuous rains that could delay plantings further. This could add to the already bullish sentiment in the market following last week’s surprising WASDE report. Those looking for some bullish upside exposure should consider the following trade. For option players consider buying the August bean 12.00 call for 22 cents, while selling the 2 August Bean 980 puts for 10 cents per option for a collection of 20 cents. This 1 by 2 ratio spread can be packaged for a two cent debit, which in cash value is $100.00 plus all commissions and fees. If the underlying August futures closes below 10.26, it is my opinion that this trade should be closed.
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 email@example.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.