Meal continues to lead the market higher. This whole Soybean and Soybean Meal story over the past two months has its roots in the production issues in South America. Both Brazil and Argentina have had production cuts due to poor weather. That loss in production in South America leads to more demand in the US. The bushels lost in South America would have been sold in the export market. Those bushels are destroyed and the US makes up the difference.
Now there are delays in Argentina for meal delivery AND a quality issue. Take a look at the July/Aug meal chart. Meal has been leading the Soybean complex higher and until quality meal is flowing again from Argentina I think we see a lot of volatility in soybeans. Eventually this story will stop but you never know when.
I think July/Nov Soybeans is one to watch. When this meal story dies down I think July/Nov beans could take a hit lower. There is a huge long position in July and a lot of those longs could roll to Nov, putting pressure on July/Nov. It is probably a little too early to jump in that trade because if we get weather issues in the next 2 weeks in the US, the meal spreads and the soybean spread can move another leg higher.
If you are looking to bear spread July/Nov beans keep an eye on the meal situation (cash and front month), the weather for planting in the first half of June, and the size of the long position in July Soybeans. If we get to June and start to see the Meal situation is sorting out, the weather is still good in the forecasts for planting, and the longs need to roll from July to Nov, that is when to take a stab at bear spreading July/Nov beans. Until then the bias is still bullish – especially with what is going on in the front month of soybean meal. For now July meal is the leader.
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July/Aug Soybean Meal
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