Old Crop Soybeans Independence

July 1st, 2009 Posted in Uncategorized

Having fully discounted the USDA acreage report yesterday, corn market tumbled and pressure was mounted in the wheat futures contracts across the country. Interestingly, within the last 25 minutes of trading, wheat had every chance to plummet toward the day's lows, yet it rebounded rather quickly to the tune of about 15 cents/bushel in a mere few minutes. Sure looked poised for a recovery of at least some of the losses. This morning I see that KC, Minn., and Chicago wheat futures are up anywhere from five to eight cents/bu. Wheat prices, for good reason in my opinion, have fallen quite substantially. Yet into oversold territory. And now I think it's poised for some sort of bounce. 

Old crop beans yesterday traded both north and south of unchanged. Old crop ended only modestly lower. Over night the SN9 & SQ9 are each up 19.75 cents. We went long SQ9 @ 1120.4, so the hope is that old-crop tightness considerations continue.

Lean hogs are off a little bit overnight. There are two strategies I've discussed that are still in play. The LHN9/LHZ9 spread offered the opportunity to vacate at a gain prior to the report last Friday. Those who chose not to vacate are incurring a loss, as the spread is now at -3.15, Dec under July. The improved performance with respect to retained pigs/litter and the March-May farrowings combined to pressure the deferred contracts (LHZ9), whereas the front-end supplies offered no bearish surprises -- propping up the LHN9. Thus, the heat.

Those still in the spread should, in my opinion, stick to the 3 cents risk based on the closing price of the spread. All sources I read indicate the producers are still suffering losses - maybe less of a loss, but still a loss. This cannot continue indefinitely without further breeding herd liquidation. And if liquidation occurs, the front end should fall some. The back end, in my opinion, wilL either stabilize or rally -- as thoughts will then turn to a decrease in supplies for the Dec. '09 thru early Q1 '10 time frame. These are my thoughts at this point. So far the market is telling me I'm a victim of poor judgement or poor timing, which is why the risk was defined.

The other hog play is the LHZ9 70 Cent Calls, which were recommended to buy in average-down fashion each 1 cent lower from 3 cents down to 1 cent. If done, the position is now long 3 LHZ9 70 Cent calls @ 2 cents, for a total risk of $2400.00. Looks like the last trade in that option is 0.75 cents. The same thought process as above applies to this trade, meaning I'm looking for a recovery in the next 4 months or so.   

On a fresh market -- let's take a look at the Britsh Pound. The BPZ9 has stayed in approximately 300 point weekly ranges banded by approximately the 162.50 to 167.50 level (that's $1.625 to $1.675 per British Pound). I think it is a good time to either get long a straddle or a strangle. The BPZ9 has at least an 84% correlation to two other years in the past, and if the correlation pans out the projected move would be a rally up toward $1.74 by early September. Conversely, the seasonal tendency for BPZ9 is for a rally into the end of July, and then a break into the latter part of August. Either scenario looks for movement, which is what one needs when buying volatility. I'll come back with some suggested straddles/strangles soon.

Call me with any questions....

Bob // 1.312.987.2053; 1.800.388.0998