CME agricultural markets are being pressured by high corn and soybean ratings from the USDA and from private forecasters FC Stone and Allendale to name a few.
Bearish yield/production estimates were released after Monday’s close. The reports showed that soybean conditions are record large as of the end of August. Corn ratings that are termed good to excellent are at the upper end of the historical record, and both have been rising in late August which is contrary to what usually happens beyond the midpoint of the growing season. The trade is adding bushels to production and ending stocks. The condition and private forecasters also noted that while corn harvesting in the Delta and southeast is behind average, soy harvesting across Texas, Louisiana, and Mississippi is right on schedule.
It is my view that producers in the south could aim to capture an increased premium in spot beans particularly at the Gulf, which could ultimately drive prices lower. Also worthy of note, both U.S. and European weather models continue to show bearish weather forecasts with mostly normal temperatures and enough widespread moisture. As we enter the middle of September while the odds for a crippling late September Frost in the upper plains and in Canada are eroding daily.
Sell Rallies
Simply put, I believe traders should use these recent rallies in beans as selling opportunities. The fact is we planted a tremendous amount of beans versus prior years and yields look to be at the most conservative end no worse than last year and most likely much better. I therefore propose the following trade. Buy the November Soybean 10.00 put for 10 cents or better. The cost of the option is $500.00 and the risk is the price paid for the option plus all commissions and fees. I’m looking for November beans to make a bottom at the 9.55 level.
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. 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.
