There is a lot happening in the soybean market.  Thursday’s export sales report showed 459-thousand metric tons of soybeans were sold last week.  That is down 9% from the week prior and 26% under the four week average.  Key US soybean buyer, China, was in for 272-thousand of the total compared to the two weeks prior of 208 and 613.  We had decreases of 65-thousand and 146-thousand to unknown destinations, probably China. 

Export sales are now 95% of the expected USDA projection for the marketing year.  This will have traders believing that the USDA will raise export projections and lower ending stocks on the monthly report March 10th.  So, though demand has been good this marketing season, it is beginning to slow.  As Brazil’s harvest progresses quicker in the month of March, I suspect by mid-month, we will see weekly export sales turn negative, as China turns to Brazilian ports as a primary port of origin.  Next will be a short covering rally ahead of the March 10th report, followed by a correction, then by a much larger rally into the March 31st planting intentions report. 

As we reported last week’s USDA forum conference came in with a number estimate for bean acres 200,000 under last year.  Pre-report trade estimates were much higher.  At last year’s forum conference, the USDA estimate under-estimated bean acres by over 4-million acres.  This should have pre-report estimates again coming in much higher, close to 88 million acres to be planted, but expect a short covering rally into the report as the market trades fear before fact, and the fear after last week’s forum report is the government may come in with even a lower number.  Regardless of the report results when they are done trading it, we expect a measurable price break in the market before they get poised for the planting and growing season. 

The Trade

Based on the volatility and potential reasons to both see sizable rallies and breaks in the market, I propose an option strangle package that can possibly take advantage of both scenarios. Essentially the position calls for exposure to both sides of the market. Those looking for that type of exposure should consider the following trades.

  • Buy one July Soybeans 11.00 calls while selling 2 of the 12.00 calls for 6 cents or in cash value cost $300.00
  • Buy 1 July Soybean 9.20 put and sell 2 July Soybean 8.40 puts for 6 cents as well for cash value cost of$300.00.
  • One of the risks lies if futures breakthrough 12.00 by July options expiration in late June or 8.40 to the downside because in each scenario you are short an extra call and put.
  • The key will be to manage that risk by taking profits on one of the calls and puts and roiling the options strikes accordingly. The other risk is the cost of trade plus all commissions 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.