While short term demand factors in my view can be described as good as it gets for soybeans, futures still look vulnerable to a long liquidation sell-off in to the end of the year as speculators move to the sidelines.
SOUTH AMERICAN OUTLOOK
Argentina’s producers had some trouble getting their corn planted this year, and this could add to the soybean production outlook. There are more and more reports that second corn crop acres in Brazil could shift to Soybeans as well. As for now the market faces the possibility that futures will need to absorb record soybean production from South America for the first half of 2014 and record production from the US in the second half of the year.
USDA NEWS
Bean exports are sending negative signals. Inspections on Monday were 52.6 million bushels. This was down from the prior 5 week totals of 67, 87, 80, 90, and 83 million bushels. China’s take the last four weeks was 30.6, 53, 76, and 61 million bushels, which to me is a slow down. The question is was the slowdown seasonal as Brazil’s planting of its bean crop winds down and the growing season with ample rains begins, or is it price related with the recent four week $1.00 rally. It is my contention that if the weather stays relatively good in Brazil, we could be setting up for cancellations for export cancellations from China with a possible measurable break in soybean futures with near term highs limited to a bullish carryover number on the December 10th USDA crop report.
SELL THE RALLY
If the soybean market trades higher following the December crop report due to a bullish carryout number, I would propose the following trade to sell into a potential rally. I will look at buying the March 1250 put and selling the March 1150 put for a purchase price of 12 cents. The risk is the cost of the trade or put spread in this case at $600.00, plus all commissions and fees. The maximum one could collect is $5,000.00 minus the price paid for the spread and all commissions and fees.
GRAIN WEBINAR
For those interested, Walsh Trading holds weekly webinars hosted by our senior grain analyst Tim Hannagan every Thursday at 3pm central. Tim has been rated the #1 analyst in the United States by Bloomberg and Reuters for the years 2011 and 2012 for his most accurate price predictions in soybeans and corn. Admission is free, please join us.
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
