Grain Spreads: Pre Report Positioning by Sean Lusk
Aug 08, 2018
esterday morning saw Unknown destinations with a new crop purchase of soybeans for 18/19 delivery for 145 K metric tons. Unknown destinations are spelled C-H-I-N-A which has been the assumption for some time regarding corn and bean exports for future shipment to “Unknown”. We have seen China step their toe in the water the last three weeks following this massive bean break earlier this summer for new crop sales. Beans and meal are up slightly on the week so far ahead of Fridays key supply/demand report by the USDA. The average trade guess has beans at 49.8 BPA, with the average estimate for ending stocks up at a whopping 648 million bushels. The previous record sits at 574. While beans have strung together three weeks of rally and impressively have rallied 90 cents from the lows, old crop/new crop bean and meal spreads haven’t budged higher, indicating the rally here for beans is merely short-covering in my view. Nov 18 vs. Nov 19 beans and Jan 19 vs Nov 19 beans sit closer to their July lows. Currently they are at a 33 cent carry for Nov/Nov 19 and 22 under for Jan/Nov 19. Soy meal spreads like Dec 18 meal/Dec 19 meal finished today at 4.3 Dec 18 over after bottoming at 2.1 yesterday, which was the lowest this spread has been since late January. In my view, these spreads if one is paying attention, may confirm my contention that the recent rally in soy and corn for that matter, is purely evening up ahead of the first surveyed crop report of the year. If these spreads don’t ultimately hold and sustain a bid, where are we really going here as far as price? I must admit I got caught listening to some talking heads on TV today on the business channels dismiss the tariff talk as it relates to Beans predicting that China is going to take US beans anyway because they have to eventually. Talk of people still have to eat and there’s nowhere else to go to buy beans but the U.S. was behind their rationale. In my view its noise and Nonsense in my view. The trade deal in place with China states they can book beans for future shipment only to cancel those at anytime should they be able to secure cargoes at a lower price down the road. Brazil is offering soybeans into mid-November via their record large crop. October is offered at $1.80/Bu over with November at $1.95 over. The November offer works out to a 21% Brazilian premium – cheaper than securing and importing US soybeans. Brazil is trying to plug China’s soy demand need. Because of the lack of conviction here on the old crop/new crop spreads combined with the ability of China to secure cheaper cargoes in the next 90 days, I propose the following.
Buy the Jan 19 880 Put. For every Put bought Sell 2 Jan 19 1060 calls. Cost 2 cents (100.00) plus commissions and fees.
Buy the Dec 18 Meal 320 put and sell the 370 call for 1.0 handle. Cost is $100.00 plus commissions and fees.
Buy the Oct Soybean 850 put for 6 cents
These are all my opinions here and the aggressive trades for your consideration have considerable risk. I can adjust the option the option strikes to collect money upon entry. Nothing better in my view than collecting money on the way in on a strategy and if the game plan is successful, on the way out.Managing the risk here is paramount. Please call me to discuss. 888 391 7894 or email me at firstname.lastname@example.org