Bets build on soybeans hitting $20.

Discussion in 'Ag Futures' started by kanellop, Jul 19, 2012.

  1. kanellop


    Hello Again to All.

    Exist the following News:


    Bets build on soybeans hitting $20

    By Gavin Maguire

    CHICAGO, July 18 (Reuters) - November soybean futures have just surpassed their previous record high of $16.10 per bushel,

    set in the midst of the chaotic run-up in crop values in the summer of 2008.

    But traders seem to be banking on the soybean market having much more upside room this year

    as sweltering heat and a lack of rain slash the yield potential of this year's crop to further deplete already tight inventories.

    Indeed, judging by the near quadrupling in call option open interest at the $20 strike price since the beginning of July,

    that level seems to be an increasingly popular target for traders at this point in the growing season.


    The U.S. Department of Agriculture cut its 2012 U.S. soybean production estimates by more than 150 million bushels

    in its most recent monthly crop report (versus the prior month)

    as the hot and dry growing conditions stressed emerging soybean plants across the Midwest.

    However, as the soy plants are only just now entering their most critical yield-determining developmental phase,

    it is likely that further and more aggressive yield estimate revisions will be seen in the weeks ahead - especially

    if the crop-killing conditions persist for the next two to three weeks.

    Given that U.S. soybean inventories are already projected to decline to eight-year lows by the end of the upcoming crop year (Sep 1 - Aug 31),

    any additional downward revisions to U.S. production totals stand to further intensify the prevailing sense of supply tightness in the U.S.

    In fact, any additional tightening to U.S. balances would force the country's stocks-to-use ratio (a widely-used metric of market tightness) to all-time lows,

    and likely trigger a panic among large end users who depend on access to soybeans for their livelihoods.

    Graphic of U.S. soybean supply, demand, stocks & stocks-touse:


    Thankfully for soybean consumers, the United States is not the only producer of that commodity,

    so supplies should be available if you can shop around.

    Indeed, from a global perspective the soybean balance sheet is not nearly as critical as it is from ground level within the United States,

    with the world stocks-to-use ratio hovering at a far more comfortable 21 percent versus the roughly 4 percent

    in the U.S. Graphic of World soybean supply, demand, stocks & stocks-touse:

    That said, a chunk of world-level supply assumptions rely on forthcoming supply increases in key growing areas such as South America.

    But while hefty production rebounds from the drought-stunted totals of this past year are possible in areas such as Argentina,

    it is far from guaranteed that growers there will commit to expanding planted area to the crop in 2012/13 given the appeal of corn and other crops in the region.

    Moreover, soil moisture levels across key South American growing regions have yet to be fully restored following the protracted drought there earlier this year,

    so it remains uncertain how accommodative field conditions will be once planting season gets underway again later this year.

    And if soils there remain too hard and dry to allow for timely plantings,

    farmers there will be forced to delay or curtail crop production regardless of their level of desire to increase output of any particular crop.

    And if soy output in the region sustains yet another setback any 'slack' in current world soy balance sheets will quickly disappear.


    The prospect of continued downward revisions to U.S. supply estimates has prompted a scramble by traders to establish positions

    that will benefit or protect them if prices continue to rise.

    Outright ownership of the physical commodity and November futures have clearly proved to be popular options of late,

    judging by the recent advances in soybean cash and futures prices.

    But while such buying indicates that traders have an upside bias in their price assumptions,

    it gives little indication on how high they expect values to go.

    For insight into that,

    out-of-the-money call option buying activity offers a better gauge,

    as each purchased option is tied to a particular strike price that traders anticipate underlying futures values

    will approach or surpass ahead of the November futures contract's expiration.

    A number of strike prices close to and above current November futures prices have seen increases in demand of late,

    but the most noteworthy option has to be the $20 call,

    which has seen open interest jump from roughly 6,500 contracts (32.5 million bushels)

    at the beginning of the month to close to 24,000 contracts currently (120 million bushels),

    despite a 250 percent increase in the price of that option from 7 cents a bushel to around 25 cents during that period.

    The fact that traders have proved willing to increase their buying interest in that option - which has a strike price that remains

    nearly $4 or 25 percent above current November futures levels -despite the steep rise in the price

    of the option suggests a growing consensus that underlying futures values will gravitate towards the $20 target in the coming months.

    Moreover, the open interest total already in place there of roughly 120 million bushels represents more than 90 percent

    of the USDA's projected year-end soybean inventories,

    given the latest usage and production estimates.

    This means that if production levels are reduced further in upcoming crop reports - as is widely expected - there is already

    more theoretical buying interest in place at the $20 level than will be physically available come the end of the marketing year.

    Graphic of November $20 call options:

    For end users of the commodity,

    the presence of such a cluster of buyers so far above current price levels could be cause for alarm,

    and may prompt a wave of buying on the physical market aimed at securing their own access to sufficient supplies.

    But obviously any such scramble for coverage will place significant upward pressure on the price of the underlying commodity,

    and render the $20 call options all the more attractive.

    Of course, crop conditions may not deteriorate to the extent some of the most bullish traders expect.

    But with U.S inventories already closing in on all-time lows, panic buying by soybean end users amid renewed fears of a widespread crop failure

    could clearly be enough to bring the $20 price target much closer into view.

    --Gavin Maguire is a Reuters market analyst. The views expressed are his own.

    To get his real-time views on the market,

    please join the Global Ags Forum--


    Kind Regards,

    George Kanellopoulos.
  2. FJMcC


    Starting to think long beans short corn could be the trade of the year (or 2013). Old time analysis suggests up to 40K per spread potential. I would happily settle for half of that considering it only costs around 1500 per spread to hold this baby.
  3. ==========
    See your points...short corn...;
    Plenty of $20 bean strike prices most likely means ''beans in the teens'':D

    Long term beans is uptrending nicely, monthly weekly;
    but cost of money looks far better than a good entry spot on beans, [weekly /monthly now .Its so far above donchian channels;
    if you like cheap money & buy high prices,late,BOA can fix you up with some cheap financed overpriced forclosures.

    :D Long term trends are still up on all 3 grains... ;
    silver & gold...
  4. I can't really remember in my lifetime in the good old USA that anybody was ever worried about it being too dry in the springtime to plant beans.

    I don't know that much about South America. I've heard plenty of stories about dry beans, but never in the spring.
  5. kanellop


    Hello Again, oldtime.

    May i ask you,

    how Old are you ?

    Best Regards,

    George Kanellopoulos.
  6. not quite old enough to have figured it all out.

    Did you check on that African corn (or as they call it maize) crop?

    What's the story?

    They are acey duecy from us, so when we are bemoaning the old harvest they are looking forward to the new one.