Let’s cover the demand side of the market. Beans are the clear leader in this category. China is in its 5th consecutive year devouring the US crop. Export sales this year are at 79% versus the five- year average of 70% and at a record pace.

China’s imports are currently 31.2 million metric tons, up 13.8 million from last year. Even with talk of bigger crops out of South America, China will continue to buy all that we are willing to sell.

Demand

I look for the demand side of the market to be a constant support on price breaks. Domestic demand looks to continue equally as strong. Last week’s cattle on feed report showed more cattle on feed then the market had anticipated. With the onset of a colder than normal winter, demand for soy meal in the feed ration should to continue to grow, which will lend support on corrections.

Supply

On the production side, last week’s crop progress report showed 97% of US beans harvested. With warmer weather after Thanksgiving pushing 60 degrees in the Midwest, the harvest should be complete and those production numbers should show up on the December U.S.D.A. report. The latest word is that the grain harvested in November will most likely show up on the December report as being the lowest yielding. The last three trading sessions through December 2, 2014 have seen January soybeans break sixty cents to close below 10.00 for the first time since early November.

The Trade

It is my contention that one should use the latest price break in soybeans to go long the market in to the December 10th report. The 50-day moving average sits at 991, while the next support is down at 9.75. If January soybeans hold 9.75 through the remainder of the week, I propose the following trade.

  • Buy the February soybean 10.40 call and selling the February soybean 11.20 call for 10 cents or in cash value 500.00.
  • The risk on the trade is the price paid for the spread plus all commission and fees.

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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.