Grain Spreads: Not Staying Here

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Commentary

From a demand perspective there is worry that a lack of new crop soybean export sales into China could be becoming more important as China has zero new crop soybean bushels on the books for the 2025/26 marketing year (starting September 1). Even new crop sales to unknown destinations are at a 5 year low for this week in the year. Several other countries now use the alias of "unknown" now as well. Speculative money continues to liquidate the Oil Share position (long bean oil, short meal) it has held since mid-June. Share is now 3% off its highs of 51.6% and is nearing 30-day lows. Further erosion in carbon policy has put a cloud over the EPA’s biofuel mandate, yet it remains unchanged. US basis continues to attract non-Asia business with spot offers at an 80 to 90 cents per bushel discount to Brazil. We are still supply-side driven, and the bean crop is far from finished. With August the pivotal month for soybeans. They can pod and rebloom multiple times and recover or decline based on the weather the next 30 days. Crop conditions this past week lost 1 point to 69 percent good to excellent. The 6 to 10 and 8-to-14-day NWS forecasts show the Midwest heating up significantly in some areas but accompanied with rain near term in the 6 to 10. The key will be moisture here. If rains miss next week, the market could go bid quickly. However, should the rains accompany the heat like they did in July, I look for beans to test last year's lows at 945. Should hot and dry persist through August, I’m thinking the market trades to 1060 then 1110 depending on the severity of any weather hiccups. In any event, we are not staying here as far as price for much longer in my opinion. Trade idea below.

Trade Ideas

Futures-N/A

Options-Buy the Oct 25 soybean 1060 call and buy the Oct 25 soybean 940 put strangle for 8 cents OB plus commissions and fees.

Risk/Reward

Futures-N/A

Options-The risk is the price paid, (8 cents or $400) plus all trade costs and fees. Offer the strangle at 30 cents for a 22 cent gain less trade costs and fees. Risk on a stop 4 cents on a GTC basis risking $200 plus commissions and fees. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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