Aside from eyeing the usual crop condition, export news, and latest weather reports, traders will be given results from various crop tours this week. Pro Farmer’s crop tour and subsequent results could either validate the USDA’s surprising bearish outlook released on August 12th, or could reduce yield and therefore production for this year’s crop. I believe this week’s crop tour could have more influence than in previous years as the USDA called for record yield and production for both beans and corn. For corn, the latest commitment of trader data shows that funds actually increased their net short positions in the market in the face of a twenty one cent rally since the USDA report. Non Commercial-non reportable positions came into this week short over 94,703 contracts, an increase of over 10K shorts last week.
For beans, demand has been the reason this market has stayed bid above the 10.00 level for the new crop November contract. On Friday (8/19), the USDA announced a sale of 261,000 metric tons to China while another sale announced this morning (8/22) of 120,000 metric tons went to China as well. The sales pace has been phenomenal as the U.S. has contracted for future shipment a total 4.84 million metric tons of beans in the last thirty days. There’s been a lot of noise about a raise in yield up to 50 bushels per acre with some estimates for beans up to a staggering 52 B.P.A. Such yield if announced by the USDA in their September report would most likely result in a sharp drop in futures prices due to a substantial raise in ending stocks.
To take advantage of such price movement or harvest pressures in beans I suggest the following trade. Look to buy one January 920 put and sell 2 January 1260 calls for even money. Currently this option ratio is trading at a three cent debit. Therefore I’m looking to place this trade if futures prices rally near the 1030 level basis January 2017 futures.
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.
