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Grain Spreads:Old Gaps/Opportunities/3 trades

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Jan 2020 soybeans filled in some prior Spring gaps on the daily chart at approximately the 868 level. These have been violated and surpassed a few times since the gaps were previously made so the significance isn't as important in my view but noted all the same. The 868 level also represents a 50 percent retracement from the highs up at 945 from the lows at 791 on the weekly continuous. Below is the daily Jan 20 bean chart. I like beans to the upside longer term. That said there haven't been many reasons for the bulls to hold onto longs in November. Harvest progress in the Midwest caught up. Needed rains arrived in Brazil. Phase 1 trade deal still not signed with China. The USDA did not alter bean production numbers, yield, and ending stocks from the October report. Therefore funds flipped from long to short as no new demand or supply side concerns entered into the market. In my view we wont have our first look at US harvest numbers until the January crop report. The trade issue with China is a constant flip/flop, one day its on, the next day its doomed. The market in my view is simply tired of it. Needed rains are still forecasted to occur in Brazil deep into December, however the forecast has it bone dry for Argentina, who is the world's number one bean crusher. Note: Argentina is about 54 percent planted so far for beans. Its early but should that continue, I would imagine some short covering would emerge. Fund positioning plus drought equal rallies in my opinion. Also keep in mind that US production in my opinion is going to come in 1 billion bushels less than last year. I see this bean crop adjusted lower in the weeks/months to come. Throw in a weather issue, and or trade deal and I think the lows are in. If neither, we continue to search for a bottom.

A longer term trade would be to be to simply sell a deep in the money put spread. For example the July 2020 soybeans. Sell the 11.00 put and buy the 10.00 put and collect 92 cents or 4600 minus commissions and fees. The max loss is 1.00. So the risk is 8 cents plus commissions and fees. Sit with it. In my view you will have an opportunity to buy it back for less. This is not the immediate gratification trade but rather a static long in the market. For something more immediate or three week bet, look at buying either a cheap Jan or Feb 2020 call or the futures off of trendline support at 870. Option expiration is Dec 27th with First Notice New Years Eve. Futures spreads are interesting as well. The July 20/Nov 20 settled at a 9.2 cent carry today. If beans rally, look to be a buyer here off of support at 11.0 cents under with a relatively tight stop at 19 cents July under. This is another longer term play perhaps but you can pare it with shorting the put spread if some bullish inputs (weather, trade) enter into the market.

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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


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