Export sales for wheat on the week came in at minus 449 thousand metric tons. Sales have been bad for months, but this should not be looked at as anything different than the week prior as wheat’s new marketing year begins June 1st. It is common in the last month of the old marketing year to see cancelations and new shipping dates for new crop delivery. Export sales for the new marketing year, 2015/16 were 852 thousand metric tons. This looks like a high number but is common as the new marketing year begins with a fresh harvest flooding the market. Export sales for beans came in at 433 thousand metric tons with China in for 199 of the total. Initially the market rallied off the release of the report, but closed down 11 cents on the day. Last year this time we had weeks of consecutive negative sales as ending stocks were low and the government needed to ration the crop. China was asked to cancel previous over bookings of old crop delivery dates and move it to new crop delivery dates after September 1st. This helped quiet the speculation of China’s over bookings creating food inflation here. This year is different, there are ample ending stocks. So the government is allowing China to continue to nibble at old crop inventories as there is no threat of running out and prices are down measurably from last year’s high. What the increased old crop sales do is create a mindset ahead of the May monthly crop report that the USDA will raise export projections and lower ending stocks. We only need to sell 10 thousand metric tons weekly to meet the USDA projections. Any sales exceeding that will have traders wondering just how much they will raise export projections and lower ending stocks. We should expect the shorts to be nervous and to short cover positions several days ahead of the report.
Options Strategy
I would therefore propose to take advantage of any rally in Soybeans as a potential selling opportunity to acquire some downside exposure in the market through the growing season and beyond. One way to do this is to look at a ratio put spread in November Soybeans. I would look at buying one November 940 put and selling two November 880 puts for one cent. The cost of the trade is $50.00 plus all commissions and fees. There are dual risks with the strategy with the first being the cost of the trade plus all commissions and fees. The second risk is if all three strikes finish in the money at option expiration in late October, one would be long November beans at 8.80 since the strategy calls for selling an extra put. Keep in mind however that one would also collect $3,000.00 as the long 9.40 put and one of the short 8.80 puts would exercise in the money therefore collecting 60 cents. In my view the cost justifies the risk of being short the extra put.
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 PM 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 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.
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