This is a sample entry from Craig Turner’s email newsletter, Turner’s Take, published on June 03, 2014.
I have not talked a lot about soybeans lately because it has been such a difficult market to trade. The dynamics between old crop and new crop right now are so different that they may as well be two different futures markets. If you want to trade soybeans, maybe the best way to do it is to use the SN/SU spread for old crop and the SU/SX spread for new crop (I’ll expand on that in a little bit).
As for the current stay of soybeans, we are 78% planted vs the 59% from last week and the 70% five year average. New crop is off to a great start. One can make the argument new crop soybeans are overvalued by $1.50 to $2.00 based on current new crop production estimates. However, unlike new crop corn, new crop soybean does not have an adequate carry in to make up for production losses. If old crop continues to be tight from now until harvest, new crop prices will most likely remain elevated until we get past critical growth stages.
Bears are arguing reduced Chinese demand, lower Chinese crush margins, soybean exports from Brazil to USA, record production in SAM, and record US new crop will send prices much lower. These factors are more focused on new crop.
Bulls point to tight old crop stocks, strong export demand, and a strong crush market in the US. These factors are more focused on old crop.
For old crop/new crop, SN/SX has been very volatile and difficult trade and for now seems to remain high until the USDA tell us old crop stocks are adequate to get through the marketing season and into new crop harvest. Old crop and new crop are a tale of two different worlds right now. Interestingly, as SN/SX and SN/SU are making a run at recent highs, SU/SX has been trending lower. Perhaps bulls looking to play old crop tightness should be looking at SN/SU instead of SN/SX in an attempt to cut down on the volatility while bears looking to play Brazil exports to US and large US new crop production should look at bear spreading SU/SX instead of SN/SX.
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