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SOYBEANS | Basis has been taking a beating in a number of locations across the country as soybean harvest is in rampant in the Midwest. The recent strength in Soybean Oil and the strong demand from China for US soybeans has been able to support the futures market. It looks like to us soybeans should trade in range during October from $9.35 to $9.90. Export demand and tight global vegetable oil supplies should support front month soybeans around $9.40. US ending stocks projected at 395, US soybean harvest, and good South American weather with expectations of a record crop should limit rallies to the $9.80/$9.90 area.
Over the next week or two we could see downward prices due to the high pace of US soybean harvest. I like idea of having a bearish position in soybeans for the next week or two as harvest reaches its peak, looking for a break to the $9.40 area.
If the market does break to $9.40 or lower I like bullish positions. At that point the strong exports and soybean oil situation becomes supportive. Also keep in mind the US ending stocks is projected at 395mm bushels – and we need a huge South American crop to get there. While South American might indeed pull it off, most likely there will be weather concerns/rallies along the way. If South America loses a few million mt of production the US balance sheet gets interesting. Also remember last time Brazil has record soybean production they had a lot of logistical issues getting the beans out of the country. That could extend the US soybean marketing season for exports.
For hedgers with old crop I like selling covered call on soybeans in storage. I would do anywhere between 10% to 20% of soybeans in the bin (or being harvested now that will be going to the bin). The Dec Soybean $9.90 Calls are going for about 20 cents. You are either making a sale on 5000 bushels at $10.10 or collecting the premium (20 cents per bushel). The options expire Nov 25th.
CORN | Like Soybeans, I think Corn is range bound for the next couple of weeks to months. A close above $3.45 and $3.50 is technically bullish for corn but $3.70 is going to be a big resistance point. Not only is it resistance on the chart but at those prices US corn is not competitive against other feed alternatives on the global export market. I like selling corn when we get into the $3.60s.
If we do get to $3.70 than the Dec Corn $3.70 calls should be going for about 10 cents. I know 10 cents does not sound like much, but if I’m a farmer I would consider selling covered calls on 10% to 20% of old crop in storage. This year every bit is going to help and if we can sell covered calls on 20% of the crop a few times a year when we hit major resistance levels, it could add up to 30 cents per bushels over the course of the marketing year. 30 cents per bushel over the course of the marketing year could make or break a lot of bottom lines this season.
WHEAT | We are seeing short covering in Wheat as the funds reduce some of their massive short position. There have been issues in wheat producing areas across the globe, but we are in no way in a shortage of wheat. Old support in Dec Wheat was $4.25. Now it is resistance (see chart). Wheat has a very large carry built into it right now. May Wheat is trading 33 cents over December Wheat. If you store your own wheat I think it makes sense to sell May 17 Wheat instead of December 16 Wheat.
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