Grain Spreads: Short Dated Hedge Idea Soybeans

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Commentary

Beans finished lower with a potential downside reversal today as prices did not recover much by the close. Meal is significantly weaker from Friday, and bean oil has pulled back off its overnight highs. In addition, the US dollar had a strong day. There are rumors around today the Argentina President may be considering removing export taxes, one of his key campaign promises. This carries the possibility to create a wave of Argentina farmer selling should it occur.US soybean crush hit a new record high for the month of January at 227.859 million bushels. This was above the high-end of pre-report estimates. The January average is 197.759 million bushels. The US soybean crush pace hit a new record high for the month of January at 7.350 million bushels. The January average crush pace is 6.379 million bushels per day. Global shipping costs are no doubt rising swiftly. Part of today's weakness was likely decreased optimism that China will buy any US beans in the near term after criticizing the US's action in Iran. The current Managed Money net long in beans is the 2nd largest for the start of March in the past 10 years. China’s upcoming meeting with Trump could have a different tone, especially since its largest request has been over the US’s declared position on Taiwan. The trade is projecting a negative tone to soybean exports based on a more hostile meeting than expected before. Hence, some of the pressure on soybean futures today. Pre-report guesstimates for the March planting intentions report are higher harvested acres versus last year in beans in the 3-to-4-million-acre range higher year on year. Bean producers take note, near term downside hedge idea to consider into report. 

Trade Idea

Futures-N/A

Options: Buy the May Short Dated 1130 put. Sell the May soybean short dated 1080/1130 call spread for a collection of 7 cents or better. 

Risk/Reward

Futures-N/A

Options-The maximum risk if filled at a 7-cent collection is 43 cents. Short -dated options use the underlying November new crop future prices but utilize a May 2026 options expiration that ends on 4/24/26. With funds holding a sizable long in the market and China demand perhaps teetering, I see new crop prices too overvalued at present levels and in my opinion look for pullback to 10.80 into month and quarter end. The goal here is to buy the three-way option spread at a 7-cent collection, and work to sell the three-way option spread at a collection of 30 cents. If Nov 26 beans close over 11.70 prior to the report, I would exit the strategy. Margin is $1408 per spread. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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