Soybeans are breaking out to the upside today (originally published Tuesday Oct 13, 2015) as USDA export inspection came in at 67.3 million bushels, way ahead of expectations. The bulls have been scratching their heads lately on why soybeans are not making a run down to $8.00. We know the US is going to have a large crop, South America is planting record acres, and the US is expected to plant plenty of Soybean acres next year too. All of the bearish news seems to be factored into the market and some analysts have been writing the seasonal harvest lows are in for soybeans.
Weather risk will become a concern again for South America due to El Nino and a lot of the trade is talking about this. There are also thoughts that soybeans in the $8.00 to $9.00 range will spark demand (which we saw today in the USDA Export Inspections report). Harvest will be mostly complete for soybeans in the next three to four weeks and a post-harvest rally could be in the cards.
We have been looking at July 16 vs Nov 16 Soybeans Bull Futures Spread as a way to play a potential rally in Soybeans. If South America has weather issues and demand continues to be strong in the US, that could send Nov 15 beans up 50 cents or higher. The flat priced futures contract can be volatile and that is why we like the spread (see chart below). The current margin on a spread like this is $550.
When soybeans do get bullish, they tend to attract a lot of fund money, and in my opinion soybean rallies tend to be faster moving markets than corn and wheat. That is probably because Soybeans are primarily grown in the US and South America, while corn and wheat are grown all over the world. The point being if one of the soybean production areas falters, the last one left is now considered a single point of failure in world soybean production. Corn and wheat global production has much more growing redundancy around the world.
This will be a spread we will start following in Turner’s Take Market Alerts, a free newsletter for Daniels Trading Clients and also available as a paid subscription for traders who do not have an account with us.
July 16 vs Nov 16 Soybeans:
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