The climate is changing. Devastating fires, floods and hurricanes are bigger and more destructive than ever. Two Category 5 hurricanes hit the US in 2024. But perhaps the most destructive storm was Helene, a Category 4 storm that parked itself over North Carolina and dumped feet of rain on Ashville and the surrounding area, virtually wiping whole communities off the map.

California, no stranger to wildfires, is experiencing a “100-year” fire event every few years. Los Angeles is burning as we write this. An incredible 75% of California’s most destructive wildfires have occurred since 2015. Similar patterns are happening all over the world. A warmer globe is making the crazy weather of the past few years the new normal. The chart below shows the average global surface temperature going back 74 years. 2023 and 2024 (not on this chart) were hotter than any past year.

While it is almost impossible to predict when and where the next big climate event will hit, recent history tells us the odds of one or more occurring in 2025 are good. Agricultural commodities depend on good weather. Disruptions can severely damage output and cause prices to soar. The 2024 cocoa market is a prime example.

Weather Surprises Can Spark Big Moves

Extremely hot temperatures during the 2024 dry season in Ghana and the Ivory Coast devastated the cocoa crops of these top producers, causing cocoa futures to double in price in less than a year. This was just the latest in a series of disruptive weather events that have plagued East Africa over the past few years.

Data Source: Refinitiv

Unlike cocoa, which is grown only in a few places, corn, wheat and soybeans are grown all over the globe. This makes them less susceptible to monster price spikes like cocoa. However, the demand for these crops is much higher. Global population continues to expand and with it, the necessity of producing more grains and oilseeds. Add rice to this list, too. Disruptive weather could cause the price of any of these critical commodities to soar, perhaps not 200%, but enough to cause big problems. We will be monitoring all these markets for potential climate disruption in 2025.

Much is written about climate change, but we have not come across any method to either hedge against or capitalize on it for individual investors. Institutions can use weather markets and sophisticated algorithms to make market bets and/or lay off risk, but these are unavailable to most. Buying calls in liquid agricultural markets during periods of low price and low volatility enables us to make low-cost bets on climate disruption, without breaking the bank. A key market we will cover here is soybeans.

South America is the World’s Largest Producer of Soybeans

South America now produces significantly more soybeans than the United States, sending the majority to China. China retaliated against the tariffs imposed during the first Trump Administration by switching a substantial chunk of its soybean imports from the US to Brazil and Argentina. These countries responded by increasing production. Brazil is now the top producer. Both countries are susceptible to climate extremes.

Brazil and Argentina are facing drier-than-normal conditions, negating expectations for a South American bumper crop. The January rally in soybeans is a result of both these drier conditions and frenzied Chinese buying of US soybeans ahead of the new Trump Administration. Prices could head much higher if these less-than-ideal conditions get worse. Any major weather problems in the North American growing season would have the same effect, driving soybean prices up.

Soybeans are Bouncing Off Multi-Year Lows

Soybeans didn’t trade lower than $10.00 per bushel until last summer’s decline to $9.50 per bushel. This was the first time since September 2020. Soybeans remain relatively inexpensive, even with January’s weather boost. They are now trading at the high end of a tight, multi-month trading range after failing to follow through on the downside after making new lows in late September. We recommend using close below December’s low of $9.42 as a signal to exit long positions.

Data Source: Refinitiv

Our upside target is $13.00 per bushel in the front futures contract. However, prices could head much higher depending on how much weather disrupts the South American crop and North America crops. Problems with both could spark a run to the 2022 highs of $17.84 per bushel. We believe the potentially bearish effects of Trump tariffs – especially those covering China – are already baked into the prices. We were not surprised to see soybeans decline to new lows (albeit briefly) following the American Presidential election.

Use CBOT Soybean Calls to Create a Bullish Soybean Trade

We’ll use 5,000-bushel Chicago Board of Trade (CBOT) soybean options to create our bullish strategy. Each option covers 5,000 bushels of soybeans, making each $1.00 move in the underlying futures contract worth $5,000 and each 1-cent move worth $50. Buyers of soybean call options pay money, known as a “premium,” for the right but not the obligation to be long soybean futures at a specific price for a specific period.

Call option buyers do not buy the market; they merely buy “the right but not the obligation” to be long that market. The key phrase is “but not the obligation.” Should soybeans decline or fail to rally before the option expires, the option buyer will simply not exercise the right to buy the futures contract. A soybean call option buyer risks the premium paid, plus any transaction costs, nothing more.

Soybean call option sellers receive money in exchange for the obligation to sell soybean futures at a fixed price for a specific period. This obligation can expose naked call sellers to huge risk. (Note how this definition is the exact opposite of call option buyers.) Think of it this way: if you are an employer, you pay money to your employees. This gives you the right to tell them what to do. As an employee, you receive money from your employer, obligating you to do what your employer tells you. Options work the same way.

Combine Long and Short Positions to Reduce Risk

We can lower the cost and risk of our bullish position by combining long soybean options with short soybean options. Our upside target is $13.00 per bushel. RMB trading customers may want to consider purchasing November 2025 CBOT soybean call options with a strike price of $11.60 per ounce, while simultaneously selling an equal number of November 2025 CBOT soybean call options with a strike price of $13.00 per bushel. This “bull call spread” pairs the right to buy a 5,000-bushel soybean futures contract at $11.60 per bushel with the obligation to sell a 5,000-bushel soybean futures contract at $13.00 per bushel.

This spread is currently trading for $800. November 2025 soybean call options expire on October 24, 2025. This covers both the South and North American growing seasons. We will lose the entire amount we paid for this spread, plus any transaction cost, if November soybean futures are below $11.60 per bushel at option expiration. This assumes we haven’t exited the trade beforehand. We recommend exiting the entire trade immediately if our $13.00 per bushel target is hit.

Selling the $13.00 call forces us to sell soybean futures at $13.00 per ounce, so we cannot participate in any rally above this level. This means the most our bull call spread will be worth is the $1.40 per bushel difference between the two strike prices. Multiply $1.40 times the 5,000-bushel contract size and you get $7,000 – not a bad outcome given our $800 (plus transaction cost) risk. Aggressive traders willing to risk more can simply buy the $11.60 calls, thereby removing the upside cap on potential gains.

Note: Prices can and will change, so contact your RMB Group broker for the latest. Your broker will work with you to match a strategy to your risk tolerance and to market conditions.

Please be advised that you need a futures account to trade the options in this report. The RMB Group has been helping clients trade futures and options since 1991 and are experts in option strategies. Call us toll-free at 800-345-7026 or 312-373-4970 (direct) for more information and/or to open a trading account. Or visit our website at www.rmbgroup.com.

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The RMB Group

222 South Riverside Plaza, Suite 1200, Chicago, IL 60606

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