The recent rally in both corn and soybeans comes on two fronts. For beans, insatiable demand from China continues as on December 5th China bought a sizable 426 thousand metric tons. The sale was larger than expected and reflects strong demand for meal. China has now purchased 29 million metric tons of beans that equates to just over a billion bushels. Crush and exports have been at historic levels this year, but supplies are large enough to cover record demand with the possibility to add to ending stocks. This brings us to weather in South America which will be the price driver aside from the battle between supply and demand. There were some long term forecasts calling for continued dry weather in Argentina deep into February and into key yield development time. The lack of potential rainfall for the world’s largest bean crusher ignited a Sunday night rally and coupled with Chinese buying continues to spark rallies in both corn and beans.
The weather forecasts will take on greater importance in the weeks ahead but for now it’s fear buying over drought like forecasts that has kept a bid in both corn and beans. Funds continue to add to long positions in the bean complex and have come into this week long 185K contracts. If dry weather persists in Argentina amid strong demand with China in securing sales, look for funds to take out the near term highs at 10.65 basis January futures and pressure 10.80 and then 11.10 into month and year end.
Trend and Index following funds continue to use any profit taking as buying opportunity as China has already secured another million metric tons of beans this week alone. Friday’s WASDE report might be cause for a pause in buying, but should the report come out as expected with no major surprises, funds will ask themselves what report? And go back to trading demand and weather as they have been the catalysts for this squeeze up to 10.50. Those looking for a bullish play that has some realistic price objectives should consider buying the Feb soybean 11.00 call and selling 2 of the Feb soybean 11.50 calls for one cent. The cost of the trade is $50.00 plus all commissions and fees. My upside target if touched at 11.10 would yield a nice premium by selling the 11.00 call should futures reach that level.
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.
