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Home / Futures Blog / MRCI September 2015 Trade Review: Dec 15 vs July 16 Soybean Meal

MRCI September 2015 Trade Review: Dec 15 vs July 16 Soybean Meal

September 24, 2015 by Craig Turner

MRCI September 2015 Trade Review: Dec 15 vs July 16 Soybean Meal

This month we will be looking at the MRCI Dec 15 vs July 16 Soybean Meal futures bull spread trade.  According to MRCI’s Spread Outlook report “Soymeal consumption is greatest during the cold of winter.  Because soymeal can turn rancid, consumers cannot maintain large inventories.  Thus, demand for meal soars during and after harvest, driving bull spreads during October.”

Trade: Buy Dec 15 Meal and sell July 16 Meal on 9/28 and exit 10/25.  The suggested Protective Stop from MRCI $806 (see table below).  The spread margin is $660.  Average profit on winning trades in the past 15 years is $767.69.  Worst drawdown in the past 15 years was $1140 in 2012.

  • Hypothetical P&L Table

Below is the MRCI Hypothetical P&L table when entering this spread at the close of the start date and exiting at the close of the end date.  Take a look at the “Worst Equity Amount” column – it was $1140 in 2012 but for the other 14 years it did not go beyond $500.  When I look at the profit potential, I tend to remove the outliers.  So in 2014 it was up $2400 and in 2003 it was up $2310.  In many of the winning years the average profit ranged from $300 to $600 which I think is a more realistic target this year.

PandL_Table_Meal_Sept_2015_MRCI

  • 15 Year Seasonal Trend Chart

Below is the 15 Year Seasonal Chart.  The thick black line is this year’s price and the blue line is the seasonal pattern.  I usually like this year’s prices to follow the seasonal pattern, or be below the trend.  I would like to see a pullback in this spread before getting in.  I don’t think we will go from $4 to -$4 before the seasonal window starts (that is unrealistic in such a short time) but $1 or $2 lower would be nice.

Seasonal_Trend_Meal_Sept_2015_MRCI_2

  • 15 Year Monthly Spread Price Chart

I always look at the monthly charts to get an idea of where these spreads have traded over time.  During years of soybean shortages, this spread has gone much higher (see below in 2012, 2013, and 2014).  I don’t think we will have a shortage like in years past, but we could see improved demand as the weather gets colder and animals need more protein.

MonthlyChart_Table_Meal_Sept_2015_MRCI_2

  • Daily Dec 15 vs July 16 Meal Chart

Back when the trade was talking about 500 and 600 million soybean bushel carryout, this spread traded under $0 to -$4.0.  When the trade then realized 300 to 400 million carryout for new crop was more realistic, the meal spreads gained along with the rest of the soy complex.  If soybean meal demand picks up, if the weather is colder and animals need more protein for feed, or if South America has planting issues, this spread most likely strengthens.  It becomes a loser if the weather is extremely mild, or supply is much higher due to better than expected yields at harvest, or South America plants more acres than the record it is already expected to plant.  There are absolutely no guarantees in trading, but I think the possibility exists that the bullish scenarios will work out.

Daily_2015_Chart_Meal_Sept_2015_MRCI_2

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Risk Disclosure

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

EXAMPLES OF HISTORIC PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR ARE LIKELY TO OCCUR.

STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADE PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF THE HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.

EXAMPLES OF SEASONAL PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR LIKELY TO OCCUR.

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Turner's Take

About Craig Turner

Craig Turner is a Senior Broker at Daniels Trading, author of Turner’s Take newsletter, and a Contributing Editor for Grain Analyst. Craig is often quoted in the Wall Street Journal, Reuters, Dow Jones Newswire, Corn & Soybean Digest, and also makes appearances on SiriusXM – Rural Radio Channel 80 providing commentary for the Grain and Livestock markets. Craig has also been featured in FutureSource’s Fast Break series, Futures Magazine Online, and INO.com. Mr. Turner has a Bachelors from the Rensselaer Polytechnic Institute (RPI) where he graduated with honors and has worked at the NYSE and Goldman Sachs. While at Goldman, Craig earned his MBA in the NYU Stern executive program. Learn more about Craig Turner.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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