Grain Spreads: Gap Hunting in Soybeans

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Commentary

Spread trading was noted today in both corn and soybeans given the lack of fresh fundamental news. A rally in the global oilseed market was supportive for the soy complex, but optimism faded by the close. I don’t see a reason why old crop beans would trade to a significant inversion vs new crop. There are no new surprises in my view from last week's meeting with China in my opinion. We could see some strength in all contract months if the Iran war starts again, which is probable in my view. That said, new crop beans are the crop that has the uncertainty. Old crop supplies are ample at a 345 million bushel carry amid soybean harvest ongoing in Argentina. I wouldn’t be surprised if July26/Nov 26 beans trades from a 6.4 cents inversion currently to an eventual carry. In my opinion, there are no new beans to be purchased by China today than what was agreed to several months ago. The $17 billion AG purchase by China number given by the administration over the weekend is outside of soybeans, making the 40-cent rally across the board in the futures market yesterday to be skeptical of. US soybean plantings continue at their hurried pace with NASS reporting that the US is 67% planted as of the weekend vs 53%, the 5-year average. Michigan is the only top ten bean producer lagging at 37% planted vs 46% average. I think if you want to be long beans, get long new crop. There is a major gap at 1297 to 1291 that’s never been filled from the Dec 31, 2023, close to Jan 2, 2024, open. (See blue arrow on chart) That would be the first target hit on a rally in my opinion. Trade idea below.

Trade Idea

Futures-N/A

Options-buy the October 26, 13.00/14.00, call spread for 11 cents OB.

Risk/Reward

Futures-N/A

Options-Cost and Max Risk is 11 cents or $550 plus commissions and fees. We suggest risking no more than 8 cents on a GTC stop loss, which risks $400 plus trade costs and fees. Offer to sell the spread at 52 cents to exit, for a gain of 41 cents, as I see beans taking a ride 30% higher on year to the 1360 area, should weather hiccups arise this, Summer. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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