The bean complex has held up in the face of a rising U.S. Dollar that has hit 13 year highs amid hawkish commentary by the Fed Chair this week and an unrelenting post election stock market rally. Demand remains insatiable with China in buying soybeans four out of five sessions the week prior for a weekly total of 1.076 million metric tons. The continued buying has stymied any significant downside momentum following the November 9th bearish WASDE report. We are now a demand driven market as the November report from the USDA was the last major supply side report for 2016. A sharply higher trade in Chinese meal futures for the first two sessions this week along with a strong palm oil market has led to a 37 cent gain in January soybeans so far in this holiday shortened week. It’s the highest close since late October, and technically a market that doesn’t seem to want to relent given potential seasonal buying tendencies into Thanksgiving. The trade seems to want to confirm South American weather and that the U.S. would acquire any unforeseen export business in 2017 out of China should there be weather issues in the Southern hemisphere. Weather in South America is for now a two sided coin. While recent rains in Brazil the last few weeks continuing through month end are sending needed moisture to the major bean growing areas of central and northern Brazil, Argentina has turned very dry with warm temperatures and very little rain in the 6 to 10 and 11 to 15 day forecasts. Should this weather pattern persist deep into December, trend and index following funds will build another weather premium into year end and into the early January crop report.
The market has experienced very impressive action on good volume with open interest up over 35K contracts this week. A close at 10.30 in January soybeans potentially sends this market to the 10.50-10.60 area. Here is an aggressive trade to consider. Buy the January soybean 1050 call and sell 2 January soybean 1080 calls for even money. The game plan here is to sell the 1050 call should futures trade up to the 1050 area hopefully for a premium of at least 20 cents or $1000.00 minus all commissions and fees. It’s an aggressive strategy. Those looking for something long-term may consider buying the March soybean 10.00 put and selling 2 of the March soybean 1160 calls for 4 cents or $200.00 plus all commissions and fees. At the end of the day, soybean prices are sitting almost 1.30 above last year’s price at this time while ending stocks are almost double. In my view Producers need to consider using these rallies for a percentage hedge against current and future production.
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.
