Grain Spreads: Rug Pull by Sean Lusk
Aug 13, 2018
Not a good day for the grain bulls on Friday as the USDA in their infinite wisdom raised ending stocks, production, and yield for corn and beans to the most bearish extremes in my view. Wheat acted as tail of the dog as ending stocks were lowered below the average trade guess, the problem for wheat was that global production was revised less than expected. The USDA put corn and bean yields at records at 51.6 and 178.4 respectively. I understand the corn number as that crop is made. However beans have a long way to go. The issue though with beans is that with the trade war, our biggest buyer is projected to be filling their needs in South America for the time being. Weather will be the determinant on final yields with potential future demand a political football between the President and his surrogates and the regime in Beijing. I contend we trade the charts. If you missed this move lower, I don’t think you fret and lament a lost opportunity. I have trade ideas to consider for corn and beans. First support for corn is then 369 and then 365. A failure here and I think we see 349.2 basis Dec. We need a settle over 388 to turn up. With this in mind consider the following:
Buy the March 19 380 corn put for 18 cents. Sell 2 of the May 19 450 calls at 7.4 cents, collecting 15 cents. Spread cost is 3 cents plus commissions and fees. March futures settled at 383.2, so you are buying puts just out of the money.
Soybeans-Yield and ending stocks were priced in as a bumper crop despite condition ratings being lowered 3 points last week. Also we are still in the heart of key yield development time. Private crop tours, no moisture, and any talk of potential trade with China would offset today’s most bearish data. Nov 18 beans need to hold trendline support in my view at 858 or I could see the market targeting the near term lows at 826 in my view. If 826 doesn’t hold, funds could push this to 765, 20 % down on the year. Yuk. If we hold support the market could retest 886. I’m concerned here that the funds may look at today’s data and press. Watch 858 in my view.
Buy the Jan bean 840 put for 19 cents. Sell 2 March 19 1060 calls for 9 cents apiece OB. Spread cost 1 cent plus commissions and fees.
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