Grain Spreads: Bean Timing

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Commentary

Recent concerns over the state of the Brazil soybean crop brought speculative money to the soy complex today, as did a firmer energy market. Grains tried to rally to start the session but struggled. An ongoing lack of flash sales and US trade uncertainty following recent developments with US tariffs limited trade in all contracts in my view. Much of the recent rally in the soybean market has been driven by large-scale speculative buying from managed money, the long position in the managed money category is thought to be long near 160K. This in my opinion is akin to what we saw this past October/November in response to the initial handshake trade deal between President Trump and Premier XI. The managed money long was above 220K Thanksgiving week. Look at the chart in December to mid-January in beans. The Same type of set up could be occurring moving forward, with the result that those longs may eventually get nervous if no confirmation of additional Chinese buying is seen, especially given the timing of an expected record Brazilian soy crop bringing notably cheaper beans to the market in March with Argentina's harvest to follow. 

Trade Idea

Futures-N/A

Options-Buy the May soybean 11.00 put/10.50 put spread for 7 cents or #350.00 per. 

Risk/Reward

Futures-N/A

Options-The maximum risk is 7 cents or $350.00 plus all commissions and fees. Risk 5 cents or $250.00 from entry on a stop loss with an exit strategy to sell the put spread at 35 cents. This would be a gain of 28 cents per spread less trade costs and fees. 

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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