Last Monday’s WASDE report had the USDA confirm much of the bearish chatter in the market, which was yield above trend and expectations in at 50.6 bushels per acre, up 2.6 bushels from last month’s report. Production came in at a whopping 4.2 billion bushels. Both yield and production are both all time records. There was some bullish news on the crop report with old crop ending stocks coming in at a surprise 195 million bushels, which was lower than expectations. New Crop was revised upward at 360 million bushels. Following the report’s release the bean market broke 50 cents from Monday’s pre report release high, pulling down corn and wheat in tow. However a short covering bounce Thursday and Friday yielded a twenty five cent rally. This week saw continued buying pushing November beans up to the 50 day moving average at 9.89. There is some bullish noise in the market with the chatter being harvest delays due to consistent Midwest rains in the 1 to 5 and 6 to 10 day forecasts stalling any harvest progress that has worried end users about the availability of new crop supplies. The USDA released their first harvest progress report for beans on Monday’s report. Crop condition reports for beans remain elevated at 73 percent good to excellent which is phenomenal for this time of year and two points shy of the record made in 1994 at 75 percent for this time of year. Harvest progress came in at just 4 percent with much of that in the Delta.
The fundamental overhang in the market continues to be in big yielding years we will continue to see increases in yield for beans and therefore production. However demand from number one bean buyer China is off the charts creating a tug of war in the weeks to come amid historic supplies versus insatiable demand. What could offset the balance here and tilt the tide for the bulls is the continued drought down in Brazil. Initial spring planting has been delayed due to persistent dryness as farmers there cannot get into the field. Traders will closely monitor this in the weeks to come amid a record large U.S. export outlook for soy. Amid the tug of war going forward, look to option strangle the bean market going forward. I suggest using put positions using January options while utilizing upside call protection using March or May 2017 call options. Specific trades include buying the January 940 puts while selling 2 of the January 1160 calls for five cents or $250.00 cost plus all commissions and fees. For upside exposure look at buying the March soybean 11.00 -12.00 call spread for 7 cents or $350.00 plus all commissions and fees.
For those interested I hold a weekly grain webinar each Thursday at 3pm. It is free for anyone who wants to sign up and link for sign up is below. If you cannot attend live a recording will be sent to your email upon signup.
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.
