Grain Spreads: Beans on the Move

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Commentary

Recent soybean rallies have become selling opportunities as managed funds liquidate their recent long positions. Beans have dropped over 75 cents from the November highs in a classic buy the rumor sell the fact trade. In my view most of the managed money selling comes as China continues its slow, selective purchasing strategy, avoiding the kind of aggressive buying that could push US prices sharply higher. It is my belief that China is actively managing price risk, stretching out its buying window while relying on comfortable short-term coverage and competitive South American offers. South American weather, while not perfect, has failed to provide a compelling bullish catalyst. Brazil's rainfall distribution has been uneven, but it has not been severe enough to significantly threaten yield potential. Argentina's weather outlook has been generally constructive as well. However, private forecasters point to dryness risks for later this month and into January for both Argentina and southern Brazil, which could inject a weather premium if realized. South American production estimates could quickly change if upcoming precipitation underperforms. Tomorrow’s 11am Central December WASDE release is not expected to make any changes to yield or production, and US ending stocks are expected to rise slightly. Overall, the soybean market has underlying support from strong domestic crush margins, improved China relations, and long-term chart breakouts back in October. However, the combination of China's cautious buying, current benign South American weather, and limited WASDE expectations suggests the potential for further near-term pressure down to the gap at 10.70 basis January. I think if March 26 futures can break further to the low 1090s, I think one buys with both hands. Trade idea below.

Trade Ideas

Futures-N/A

Options-Buy the March 2026 soybean 1160/1220 call spread for 6 cents or $300 plus commissions and fees. 

Risk/Reward

Futures-N/A

Options-The maximum risk here is the cost of the trade plus commissions and fees, which in this case is $350.00 plus trade costs/fees. I would risk no more than 4 cents on a GTC stop loss for an approximate risk of $200 plus trade costs and fees. Put an objective to exit at 32 cents on a GTC basis for a gain of 26 cents less trade costs and fees. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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