Soybeans: On 05 NOV 2018, I sold the 1100-strike soybean CALL for 3 cents ($150). The stocks of soybeans are extremely high by almost all standards. Dr. Daniel O’Brien of Kansas State Univ. Ag Department made the comment (below) from his recent report:
“Percent ending stocks‐to‐use are projected to be a 32 year high (since the farm crisis years of MY 1985/86– 1986/87) of 23.25% – up sharply from 10.20% in “old crop” MY 2017/18. Although the U.S.‐China trade dispute is having a negative impact on U.S. soybean demand and price prospects, large supplies of U.S. soybeans in “new crop” MY 2018/19 have been having a dominant negative affect on U.S. soybean market prices throughout the 2018 Fall harvest…” You can gain some great insights on soybean fundamentals by reading the entire report here: source: the entire report can be downloaded at: https://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter/soybean-market-outlook-mid-november-2018
Also from KSU: Soybean historical graph of STU vs. Avg. Seasonal Price: source: KSU
As Daniel O’Brien astutely points out in his comments on soybeans, there are largely two factors influencing soybean prices in the coming months, one known and one unknown. They are respectively, the huge stocks of beans and the outcome of tariff negotiations. Additionally, since farmer’s cannot know at this time what the prospects are for selling next years soybeans, many acres that might be used to plant beans could be used to plant corn instead. This place some uncertainty of the size of next years plantings for both corn and soybeans.
The Presidents of the United States and China will meet this Saturday in Argentina; any hints of a tariff resolution in these talks could bring up soybean prices a bit. There could easily be some news on tariff’s (good or bad) from the coming meeting this weekend. At the time I sold the soybean CALL, I mentioned that Brazil’s soybean harvest begins in JAN19. The USA and Brazil are the world’s two largest producers and exporters of soybeans. One of the concerns for United States soybean growers is that they will lose market share even if the tariff disputes are settled sooner rather than later.
It is my hope by sharing this research and its sources, that readers will gain some insight into trading the soybean market. There is one other important report that includes statistics about the relative completion of grain crops. It is called a Crop Progress report. You will find the link to these reports that are issued throughout the harvest seasons (in the United States) at the link at this website’s tab: Resources: Links-Library. This week on Monday, 26NOV2018, the most recent report indicated that this year’s harvest is virtually complete; this most recent report can be downloaded at this link: http://usda.mannlib.cornell.edu/usda/current/CropProg/CropProg-11-26-2018.pdf
Crude Oil: The energy markets are expecting some hints from the Saudis and OPEC members in December on what oil production for calendar 2019 might bring. More specifically, there could be an announcement by several of the world’s largest oil producers about whether or not they might cut crude production early in 2019 in order to support prices. The top 3 oil producers, the United States of America, Saudi Arabia, and Russia – all produce over 11 million bpd (barrels per day.) Canada is the fourth largest oil producer at about 5 million barrels per day. Saudi Arabia possesses 260 Billion (with a “B”) barrels of oil reserves, accounting for around 22% of the world’s proven petroleum reserves.
The break-even price for Permian Basin (West Texas and New Mexico) crude is around US$30 per barrel. I bring up the Permian Basin oil production due to a story I read last week that contributes to the idea that production of oil in the United States could easily continue to soar. I high recommend you read this article published by Bloomberg Business News, here’s the LINK. The title of the article is: Texas Is About to Create OPEC’s Worst NightmareBy Javier Blas dateline:
Here’s another “oil fact”: Today the average price per gallon of gasoline in the United States is about $2.40. Diesel fuel is about US$.50 higher and very profitable for producers and distributors. Gasoline is a byproduct of refineries making diesel fuel. There will likely be more reductions ahead for gasoline prices between now and the end of this year.
There is a lot of information right now on the price prospects for crude oil in the first half of 2019. It’s hard to build a bullish scenario for crude oil. For now, the only interest I have in trading crude oil options might be to shop for some very high-strike CALLs to sell. I am standing aside on this idea for a while longer. Still I am watching the prices of CALLs and considering what opportunity there might be ahead to place short CALLs in 2019.
The following chart and CALL option prices are from midday 27NOV2018:
Gold: I am still short the FEB19 class of Gold options: short the FEB19 1500C/1100P strangles
and short the APR19 Gold 1600C/1100P strangles. They have respectively, 61 and 118 days until expiry.
When I placed these – I deliberately used CALLs father OTM than the PUTS on these strangles. The reason being, that should the stock market crash and investors in seeking a ‘safe haven’ should start buying gold and drive the prices UP. Gold futures and the US$ Dollar index recently have an inverse correlation; the current consensus (subject to change of course) is neutral to bearish on the US$ Dollar. I don’t necessarily agree with that view; any unexpected FEB increases in the prime interest could result in US$ Dollar strength. My short strangles are placed at strikes that I currently believe with be out of the reach of gold prices. But considering the recent large and unexpected moves in energy prices, I keep in mind anything can happen and so, proceed with due caution.
Vertical Credit Spread Strategy: As promised, I just put up an article that illustrates this strategy for both bearish and bullish scenarios. It is a popular and simple strategy for an option-trader’s tool box. Read it on the SellingCommodityOptions.com blog at: https://sellingcommodityoptions.com/blog/credit-spreads/
Summary: For now, I am shopping short Crude Oil CALLs, holding my gold short strangles, and awaiting any new from the meeting in Argentina this weekend. On the back burner but coming up: Should the MAR19 and MAY19 corn put in any kind of reliable post-harvest bottom, I might shop for PUTs to sell; I do have some reluctance yet since United States farmers may opt to increase corn planting due to very low soybean prices. In the spring of 2019 there will be reports from the USDA with surveys (intended plantings) of these crops and – that report is still a few months away. Soybean prices seem to have taken all the ‘bad news’ there is and prices are down. At present any ‘good news’ for soybeans would be neutral to bullish for the new crop corn in 2019. If farmers think they can make money planting soybeans versus having to plant corn, they will choose soybeans because growing them is not as cash-intensive (it’s cheaper) than growing corn (They don’t have to borrow as much money.)
Have a good week. -Don
Don A. Singletary
The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk. Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and use of stops or lack thereof. This is not a trade advisory service and is for educational purposes only. The content on the pages here is believed to be reliable - but we cannot guarantee it.
Don A. Singletary is a teacher and writer. For 25 years he was a commodity risk management (hedge) consultant for major corporations. He is the author of Option Income Training Bulletin, the only such publication dedicated to teaching small/medium personal investors how to sell commodity options for a second income, a strategy traditionally used mostly by professional investors, the wealthy, and money managers.
While this website is for subscribers only, you can get full access with a free trial subscription. Also you may visit his blog with many trade examples and articles on this valuable strategy at: SellingCommodityOptions.com
Soybeans: On 05 NOV 2018, I sold the 1100-strike soybean CALL for 3 cents ($150). The stocks of soybeans are extremely high by almost all standards. Dr. Daniel O’Brien of Kansas State Univ. Ag Department made the comment (below) from his recent report:
Also from KSU: Soybean historical graph of STU vs. Avg. Seasonal Price:
source: KSU
As Daniel O’Brien astutely points out in his comments on soybeans, there are largely two factors influencing soybean prices in the coming months, one known and one unknown. They are respectively, the huge stocks of beans and the outcome of tariff negotiations. Additionally, since farmer’s cannot know at this time what the prospects are for selling next years soybeans, many acres that might be used to plant beans could be used to plant corn instead. This place some uncertainty of the size of next years plantings for both corn and soybeans.
The Presidents of the United States and China will meet this Saturday in Argentina; any hints of a tariff resolution in these talks could bring up soybean prices a bit. There could easily be some news on tariff’s (good or bad) from the coming meeting this weekend. At the time I sold the soybean CALL, I mentioned that Brazil’s soybean harvest begins in JAN19. The USA and Brazil are the world’s two largest producers and exporters of soybeans. One of the concerns for United States soybean growers is that they will lose market share even if the tariff disputes are settled sooner rather than later.
It is my hope by sharing this research and its sources, that readers will gain some insight into trading the soybean market. There is one other important report that includes statistics about the relative completion of grain crops. It is called a Crop Progress report. You will find the link to these reports that are issued throughout the harvest seasons (in the United States) at the link at this website’s tab: Resources: Links-Library. This week on Monday, 26NOV2018, the most recent report indicated that this year’s harvest is virtually complete; this most recent report can be downloaded at this link: http://usda.mannlib.cornell.edu/usda/current/CropProg/CropProg-11-26-2018.pdf
Crude Oil: The energy markets are expecting some hints from the Saudis and OPEC members in December on what oil production for calendar 2019 might bring. More specifically, there could be an announcement by several of the world’s largest oil producers about whether or not they might cut crude production early in 2019 in order to support prices. The top 3 oil producers, the United States of America, Saudi Arabia, and Russia – all produce over 11 million bpd (barrels per day.) Canada is the fourth largest oil producer at about 5 million barrels per day. Saudi Arabia possesses 260 Billion (with a “B”) barrels of oil reserves, accounting for around 22% of the world’s proven petroleum reserves.
The break-even price for Permian Basin (West Texas and New Mexico) crude is around US$30 per barrel. I bring up the Permian Basin oil production due to a story I read last week that contributes to the idea that production of oil in the United States could easily continue to soar. I high recommend you read this article published by Bloomberg Business News, here’s the LINK. The title of the article is: Texas Is About to Create OPEC’s Worst Nightmare By Javier Blas dateline:
Here’s another “oil fact”: Today the average price per gallon of gasoline in the United States is about $2.40. Diesel fuel is about US$.50 higher and very profitable for producers and distributors. Gasoline is a byproduct of refineries making diesel fuel. There will likely be more reductions ahead for gasoline prices between now and the end of this year.
There is a lot of information right now on the price prospects for crude oil in the first half of 2019. It’s hard to build a bullish scenario for crude oil. For now, the only interest I have in trading crude oil options might be to shop for some very high-strike CALLs to sell. I am standing aside on this idea for a while longer. Still I am watching the prices of CALLs and considering what opportunity there might be ahead to place short CALLs in 2019.
The following chart and CALL option prices are from midday 27NOV2018:
Gold: I am still short the FEB19 class of Gold options: short the FEB19 1500C/1100P strangles
and short the APR19 Gold 1600C/1100P strangles. They have respectively, 61 and 118 days until expiry.
When I placed these – I deliberately used CALLs father OTM than the PUTS on these strangles. The reason being, that should the stock market crash and investors in seeking a ‘safe haven’ should start buying gold and drive the prices UP. Gold futures and the US$ Dollar index recently have an inverse correlation; the current consensus (subject to change of course) is neutral to bearish on the US$ Dollar. I don’t necessarily agree with that view; any unexpected FEB increases in the prime interest could result in US$ Dollar strength. My short strangles are placed at strikes that I currently believe with be out of the reach of gold prices. But considering the recent large and unexpected moves in energy prices, I keep in mind anything can happen and so, proceed with due caution.
Vertical Credit Spread Strategy: As promised, I just put up an article that illustrates this strategy for both bearish and bullish scenarios. It is a popular and simple strategy for an option-trader’s tool box. Read it on the SellingCommodityOptions.com blog at: https://sellingcommodityoptions.com/blog/credit-spreads/
Summary: For now, I am shopping short Crude Oil CALLs, holding my gold short strangles, and awaiting any new from the meeting in Argentina this weekend. On the back burner but coming up: Should the MAR19 and MAY19 corn put in any kind of reliable post-harvest bottom, I might shop for PUTs to sell; I do have some reluctance yet since United States farmers may opt to increase corn planting due to very low soybean prices. In the spring of 2019 there will be reports from the USDA with surveys (intended plantings) of these crops and – that report is still a few months away. Soybean prices seem to have taken all the ‘bad news’ there is and prices are down. At present any ‘good news’ for soybeans would be neutral to bullish for the new crop corn in 2019. If farmers think they can make money planting soybeans versus having to plant corn, they will choose soybeans because growing them is not as cash-intensive (it’s cheaper) than growing corn (They don’t have to borrow as much money.)
Have a good week. -Don
Don A. Singletary
The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk. Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and use of stops or lack thereof. This is not a trade advisory service and is for educational purposes only. The content on the pages here is believed to be reliable - but we cannot guarantee it.