Soybeans have seen a surge in buying interest since the October WASDE report with the January, March, and May contracts pushing above the $10.00 level. This is classic fund buying as continued strong demand from China and talk of a longer term impact of LaNina on South American crops. Trend following funds increased their long positions by 14K contracts last week alone. (10/17-10/21) Funds have seemed to discount the probability of an increase in both yield and ending stocks in subsequent reports by the USDA in November and then January, buying futures seemingly at a discount below 9.60 and 9.80 across the board. The leader in the soy complex lately has been Bean Oil as that market moved to six month highs this week as palm oil values soared due to strong demand in India and China. Although oil values boost crush margins, soy meal accounts for 48 pounds of each 60 pound bushel of soybeans. In my view it is not sustainable to experience a bull market in soybeans based on strong oil demand. Export inspections released yesterday for beans came in at 2.739 million tonnes from expectations of 1.9 to 2.5 million with this week’s figure the largest since November of 2014. Cumulative export inspections have reached 19 percent of the USDA average versus a 5 year average of 18 percent. Bean export demand for future shipment has been very strong with China the clear leader. But to keep things in perspective, Chinese bean imports for September reached 7.193 million tonnes which pushed cumulative imports up 2.6 percent year on year.
Without a push higher in the soy meal sector which has struggled since the China DDG import tariff, I look for soybeans to eventually trade lower into the November WASDE on November 9th. Using January 2017 options consider the following trade. Look to buy one January 17 960 soybean puts while selling 2 of the January 17 soybean 1100 calls for 3 cents or $150.00 cost plus 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.
