Much needed moisture across portions of the American grain belt weighed on soybean futures last week. Prices plummeted, bashing soybean bulls in the process. Front month futures finished the week 23.8% lower than the $16.675 per bushel highs they set in mid-May, fulfilling our prediction our prediction of a classic summer correction. Will prices fall even further? Only Mother Nature knows for sure.
Last week’s rain was helpful, but the American soybean crop is still far from being “made.” As the map of last Monday’s crop conditions (below) illustrates, crop condition depends on location. Parts of the North American growing region are not doing well at all and could continue to suffer unless the rain that fell on LaSalle Street in Chicago extends over a larger area. A new map is due out today.
Source: Successful Farming
The volatility that has been so beneficial to our bear spreads could become equally as detrimental should more red appear on today’s updated crop conditions map. Prices settled above our original $12.00 per bushel downside objective on Friday, but we are inclined to recommend closing out the September $13.00 / $12.00 bear put spreads we suggested purchasing for $700.00 or less in late May anyway. These spreads settled for $2,462.50 on Friday.
Data Source: Reuters/Datastream
Two Exit Options
RMB Group trading customers who followed our suggestion to purchase September bear spreads may want to consider one of two choices: 1) place an order to exit half of your remaining positions at twice your initial entry level or higher, then exit the other half if our original $12.00 per bushel target is hit or 2) exit all remaining positions immediately.
A fill on option 1 will enable you take your initial off the table and perhaps lock in some gains depending on your fill price. Consider option 1 should beans open higher on Monday. Consider option 2 if soybeans open lower on Monday. Strong export sales combined with drier-than-normal conditions could change sentiment in a hurry. Rising volatility has the potential to slow the pace of gain in our bear spread so we are comfortable exiting here..
Prices can and will change. Contact your RMB Group broker for the latest.
Cocoa Setting Up for a Run to the Top of Its Trading Range
Cocoa is one of the only commodity markets not participating in the inflation trade. Four months of listless, sideways price action have stripped much of the volatility out of this market, making its options relatively inexpensive – especially when compared the “through-the-roof” valuations of other commodities tied more firmly to the inflation trade.
The return of inflation following the 2008 / 2009 financial crisis corresponded with new contact highs in cocoa. Burdensome supplies are weighing on price now but we would not be surprised to see some bargain hunting from inflation trade participants before the end of the year. New contract highs are probably not in the cards but another run to the top of cocoa’s multi-month trading range may be.
Data Source: Reuters/Datastream
Friday’s price action was encouraging. Cocoa tested long-term support just above $2,300 per ton and then bounced smartly, finishing the session $35 higher. We believe the next stop will be a run to the top of the current trading range. Our target is $2,800 per ton.
RMB Group trading customers may want to consider buying December 2021 $2,500 cocoa calls while simultaneously selling an equal number of December 2021 $2,800 cocoa calls for a net cost of $600 or less, looking for the chocolatey stuff to test the top of its trading range prior to option expiration on November 5, 2021. Your maximum risk is the net cost of your “bull call spread” plus transaction costs. This trade has the potential to be worth as much as $3,000.
Please be advised that you need a futures account to trade the markets in this post. The RMB Group has been helping our clientele trade futures and options since 1991. RMB Group brokers are familiar with the option strategies described in this report. 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. Want to know more about trading futures and options? Download our FREE Report, the RMB Group “Short Course in Futures and Options.”
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The RMB Group
222 South Riverside Plaza, Suite 1200, Chicago, IL 60606
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