Soybeans began the week with the Monday crop condition report. Condition came in and 71% good to excellent condition, unchanged last week and down 2% from two weeks prior and thus tying the lowest number of the year.
With 57% of the crop having pods being set, we can safely say were in the second half of the key yield development time. Current weather forecasters are calling for below normal temperatures to continue as we head deep into the month of August. This past July was the coolest since 1895 setting up August to possibly break the record. Surely, we will have talk of an early frost by month end but early on traders will be questioning the cold weather and its ability to produce yields.
Crop tours will be anxiously awaited for and watched. Tour results could show fewer pods and smaller beans in the comments. Many believe that the excessive cool weather will have no effect on the bean crop. That was not the case the last several years as cool autumns have cut yields. Last Thursday’s Weekly Export Sales Report a demand side report showed massive exports for new crop delivery being sold primarily to China.
We can validate the impact of demand on the bean market once crop size is known, so don’t put a lot of weight on demand size fundamentals just yet. In the meantime, the last four years this time of year or in the harvest, the market was projecting over 400 million bushel soybean ending stocks. The reality was that ending stocks finished less than 200 million bushels. Technicians are excited about the beans. We have a triple bottom that potentially signals very strong points of support at the 10.55 basis November.
If we close under here look out below as next trend line support sits down at 9.50. A close over our 11.20 resistance sets up 11.50 as the next target to the upside.
Trade Idea
To conservatively play the bean market in front of the August 12 USDA crop report and through the remainder of pod setting stage, I would suggest having exposure on both sides of the market in the form of option strangles. I therefore propose buying the October soybean 9.50 put and at the same time buying the October soybean 1170 call of 12 cents, or in cash value $600.00. The risk on the trade is the price paid for the spread plus all commissions and fees.
Webinar
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.
