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Grain Spreads: Soy History Lesson


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Funds have been covering their short positions in the soybean market en masse ahead of this weekends weather, China trade talks, and tomorrows uncertain crop production report from the USDA. The average trade guess for ending stocks is at 496 million bushels. A far cry from 640 million in September, and near 1 billion estimated just a few months ago. The average trade guess for yield is coming in lower at 47 BPA, vs 47.9 last month. World ending stocks are revised lower to 96.3 million metric tons vs 99.8 last month. The Chinese as of last night have said they will increase US Ag purchases if a short term deal can be agreed upon. Lots of noise in the market on a potential trade deal. I think we should stick to the charts. Remember, just two crop seasons prior, we finished with ending stocks between 400 to 500 million bushels. The following Spring, (April, May 2018) saw soybeans trade through 10.00, to 10.40. Then the trade war and tariffs began late May 2018, and prices lost 2.50 from last years high to this years low. If we go further back to the 2016 highs above 12.00, to this years low below 8.00, I would not be surprised to see a rally in the weeks to come to near 10.00, (9.94). This is a fifty percent retracement level from the 4 year high/low. (See Chart) Weather is going to be the ultimate decider in both the Southern and Northern Hemisphere moving forward. US growing weather looks to bring problems in the North this weekend and next week with blizzard like conditions in the Dakotas, while frost freeze events occurring in these regions along with the Great Lakes next week. Should it continue to present problems for US crops deeper into October, I would not rule out funds building a long position especially if it potentially results in lower ending stocks/ yield/ production/. Although its way early for worry, plantings are behind in Brazil due to drought like conditions there. Granted that can change quickly, but I think we need to keep an eye on it as funds are hyper sensitive to weather events especially drought in my view.

Over 940 spot beans then 949, a continuation rally of old crop beans could be seen in my view. Weather will be the igniter. Under 902 and its 880 and then possibly 840. Nov 19 has two weeks left as options expire on the 25th. Then first notice the week after. Watch Jan pricing for something longer term. If you are looking for downside, look at buying the Jan 900/860 put spread for 7 cents. I would XMAS tree the long side in Jan beans. Buy the 950 call for 21 cents OB. Sell the 10.00 call for 10 cents and sell the 1020 for 6 cents. Cost is 5 cents to entry plus commissions and fees. Risk is a settle over 10.70 Jan 20 beans at option expiration on 12/27. Please call or email me with questions and comments. I hold a free weekly grain and livestock webinar every Thursday at 3 pm Central. Sign up is free and a recording link will be sent to your email . We discuss supply, demand, weather and the charts. Sign Up Now

Sean Lusk

Director Commercial Hedging Division

Walsh Trading

312 957 8103

888 391 7894 toll free

312 256 0109 fax

slusk@walshtrading.com

www.walshtrading.com

Walsh Trading

53 W Jackson Suite 750

Chicago, Il 60604

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About the author


Sean Lusk is a registered commodity broker and Director of the Commercial Hedging Division of Walsh Trading in Chicago. Sean began in the business as a runner on the trading floor during summer breaks from college in 1993. Upon his graduation from Southern Illinois University at Carbondale in 1996, Sean began his career on the trading floor of the Chicago Mercantile Exchange (CME). Overseeing billions of dollars of transactions working as a clerk in the Eurodollar pit, Sean took the next step and became a floor broker and member of the CME in 2003. He handled customer orders for banks and investment houses from all over the world from inside the Libor pit at the CME.

Now, at Walsh Trading, Sean utilizes his experience in the marketplace and his professional client service skills to aid and assist customers in their trading endeavors.  

He writes daily and weekly commentaries focusing on both the Precious Metals and Agricultural Markets along with related market activity.

Sean has been quoted in various media outlets discussing futures markets. 

These include:

 

  • Futures Magazine
  • Reuters
  • Forbes
  • Kitco
  • Nikkei Press
  • CCTV.com

 

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