Wheat traders are worried about weather on the emerging wheat crops and corn's weather concerns are over wet conditions delaying fieldwork and planting delays. Soybean traders don't worry about weather until May as beans are planted last. This leaves demand next week still as a pricing source.
THE DEMAND PICTURE
Demand for soybeans has slowed appreciably. We've gone from exporting 354 thousand metric tons weekly, 5 to 8 weeks ago, to 43 thousand metric tons the last four weeks. Thursday's weekly export sales report showed 800 metric tons sold for future shipment, a marketing year low.
Seasonally exports will further erode in May. After May 1 trend and index following funds refocus away from demand to weather and its effects on planting. Traders will use weather to determine if excess rain and corn planting delays will lead to more or less beans going to seed. When you consider the price of beans versus corn, it would be a very easy decision to switch corn acres over to beans. Every year this discussion on switching arises but never really occurs. This year is different as the price comparison is huge. With a wet week ahead for the Midwest slowing and stopping fieldwork and planting we should look for beans to have a bearish reaction after Monday and Tuesday’s early rally.
For a conservative position trade, I would propose the following trade. Look at buying the July Soybean 1400 put and sell the July Soybean 1300 put. The price paid for the option is 9 cents, or in cash value $450.00. The maximum one could collect on the trade is $5,000.00, if both strikes finished in the money at the time of expiration.
The risk on the trade is the price paid for the spread plus all commissions and fees. The last time we had ending stocks this tight was 2012. Funds and speculators took beans from $15.00 down to $13.00 in less than six weeks.
Note that weather during May and early June was optimal for planting in that time frame in 2012. Weather so far this Spring or for some parts of the Upper Midwest (extended winter), has been cooler and wetter. Weather in May is obviously the key, but this a low risk trade all things considered, to catch funds who hold enormous long positions in the market and look for them to take profits before the end of June.
For those interested in grains, Walsh Tracing’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 p.m. 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 here.
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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Some of the best grain market volatility occurs each year in the spring. Read the story in our Spring TraderPlanet Journal.