November soybeans have now rallied $2.00 since March. Ninety percent of the rally is weather related. The concern here is that excessive water from El Nino is preventing planting from occurring on time and there is much talk that it is going to turn dry and therefore we may be in for a warm dry season. The latest crop report showed a dramatic drop in carryover stocks of twenty five percent, the question now is, is that the beginning of further declines to come?
The market needs to ration itself now very carefully until it decides if the worst is over or not. Until then, there will be big swings in the market. Soybeans came in planted 36 percent this week versus the ten year average of 31 percent. However short and long term forecasts are calling for continuous rains that could delay plantings further.
This could add to the already bullish sentiment in the market following last week’s surprising WASDE report. Those looking for some bullish upside exposure should consider the following trade. For option players consider buying the August bean 12.00 call for 22 cents, while selling the 2 August Bean 980 puts for 10 cents per option for a collection of 20 cents. This 1 by 2 ratio spread can be packaged for a two cent debit, which in cash value is $100.00 plus all commissions and fees. If the underlying August futures closes below 10.26, it is my opinion that this trade should be closed.