Futures Commentary and Analysis

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Grain Spreads
Sean Lusk - IF - Tue Feb 13, 4:06PM CST

As wheat and corn succumbed to some turnaround Tuesday action today, soy spreads particularly old crop/new crop bean and meal spreads posted new highs. The market has begun pricing in a weather premium that began on the Sunday night open as weekend rains failed to show up in Argentina. The forecast into the end of February according to European model runs shows any future meaningful rains coming in as bleak into the first week of March for the central and southern Argentinean growing areas. If the European models prove correct, the path of least resistance is higher in my view in beans and meal. Forecasts can flip-flop all the time, so watch the charts for direction. I would encourage anybody to email me or go to our website (www.walshtrading.com) to look at the latest model runs and weather power point from top AG weather site WX risk. The fear is that Argentina's soy and corn crops will continue to be downgraded as we inch closer to key yield and development time. Brazil however is harvesting beans in their main growing provinces with upcoming rains in some areas delaying getting beans out of the ground. While delays are temporary, Brazil looks to produce a sizable bean crop and almost as much as last years bumper production according to some analysts. It should make up for some of the Argentinean shortfall but their production is the key here and the cause of the soy rally in my view. Some estimates are cutting production in soy anywhere from 15 to 30 percent. It's a sizable cut and in my view has been the catalyst for the rally in meal and beans.

Lets review: The July18/Nov18 bean spread, we suggested buying near parity or on breaks at 2.0 to 3.0 over. This spread hit our initial upsidetarget today at 14 cents July over. Should beans rally this spread can push to 19.6 cents over and then 25 cents over. Support is at 5.6 over and then 3.6 over. July/Dec Meal was bought between parity and 2.0 points July over Dec. This spread reached our target of 11.0 over today reaching a high of 12.7 over. If you're looking to buy dips look for a pullback to 6.2 over with an upside target of 18.0 July over. Funds in my estimation have gone from a net short to a net long in beans this week as they came in short less than 10 K contracts as of last week. Managed money in meal has near 55 to 60 K longs in the market ,with the open interest climbing 28 K contracts in six straight sessions prior to Tuesdays session. I will cover corn/wheat in tomorrows report.

Please join me each Thursday at 3 pm for a free webinar on the grain and livestock markets. A recording link will be sent to your email upon signup.

Those looking for a free marketing prospectus for your grain and livestock production should call or email me at 312 957 8103 or slusk@walshtrading.com

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