Share Facebook Twitter Google + LinkedIn Pinterest Another wild week for the markets. Is it irrational exuberance?Soybeans continue to show strength in the futures market. Following are some reasons for the continued rally:Fear of lost/reduced bushels in ArgentinaMore potential for U.S. exports to fill China’s increased demandDecrease in the dollar’s valueLimited coverage by end users on soybean meal caused a panic to cover shorts in the marketFunds switched positions during the last two months to sizable long positionsSummer weather uncertainty may cause those short futures to exit positions until later in growing yearThe market may still be worried that corn acres are trying to be bought back at the last minuteBean’s technical “picture” still looks positive.In my opinion, some of these reasons why we could be at a near term top:Argentina’s “loss of bushes” represents only 2% of the world’s production or 10% of world projected carryoutIt’s uncertain that soybean meal end users will continue to be strong buyers in the long-term if weather looks favorableEven if funds that are long decide to reduce risk and sell, who is going to step up and buy?While futures increased during this rally, basis decreased at the processors signaling they don’t need beansThe May-Jul soybean spread is wide, suggesting the market wants beans storedFundamentally, the market may be near the topIn 2012 beans rallied $1.50 from March 1st to May 1st, but then lost $1.50 from May 1stto June 1st. Ultimately beans rallied $3.50 after mid-June but only once summer weather was determined.Generally it is expected to be a warmer summer than normal, but precipitation may be above average too. Many are saying it is a flip of the coin, making marketing difficult.CornThere has been some concern about Brazils safrina (or second) corn crop not getting enough rain. While this may be an issue, it’s important to remember that Brazil only produces about 10% of the world corn crop and this second crop is half of their entire production. The problem area might only represent 5% of Brazil’s total production. Which would be less than 1% of the world production.Corn basis fell dramatically at ethanol plants across the country signifying this rally may be a bit overdone. However the Gulf basis, which is an indication of export demand, has held strong. The May/July spread narrowed as the delivery process started. This may indicate either exporters are short and trying to cover, or this rally is indeed warranted.Planting progress is good and most of the Corn Belt will be planted next week. This early planting may offset later weather issues, but it is still too early to tell.MacrosManaged money funds have been throwing a lot of cash at commodities. This has caused a surge in prices that make fundamental traders scratch their heads. These funds have more money and can outlast everyone else when it comes to trading positions that might not make sense to others. Could we go higher? Absolutely. Could the funds suddenly switch their positions and erase all the gains of the previous two months? Certainly.Market ActionFollowing provides details on recent trades including strategy and rationale. A common theme throughout the trades is keeping my marketing strategy flexible with consideration to market volatility, decreasing risk as much as possible and taking advantage of opportunities for premiums in the market. As always, I may not always hit the top, but I don’t want to be forced to take the bottom of the market.1) Bean FuturesTwo weeks ago an order I placed to sell Nov futures at $10 was hit. 80% of my 2016 production is now priced at a $9.50 average.2) Bean OptionsOn 12/18/15, when May beans were $8.80, I was concerned that the expected large South American bean crop combined with the large U.S. harvest could drive bean prices lower. So, I wanted to minimize my downside risk while maximizing upside potential. Trade details:Bought an $8.80 putSold an $8.20 put (to pay the premium of the $8.80 put)Sold a $9.20 call (to pay the premium of the $8.80 put)This trade provided – 60 cents downside protection with 40 cents of upside potentialOutcome: on 4/22/16 when the May options expired I was required to take the $9.20 May sale because May futures were above $9.20 ($10.20).3) Bean SpreadWith all my old crop sold, I had to apply this $9.20 sale in #2 Bean option trade above to new crop. Since my short was in May futures (which I had to be out of today) I bought my short position back in the May futures and sold July futures at the same time, receiving a 10 cent carry (or premium). Now my sale is currently valued at $9.30 against July. Right now there is a 20 cent inverse (decrease) from July to Nov, which increases my risk of taking a loss yet on this trade. However, usually beans will adjust to a carry position closer to the delivery period when we have huge carryout like we have in the market currently, so I’m going to wait it out. I think the risk is manageable and I’m comfortable with what I know today. This makes me 100% priced on my 2016 production at a $9.45 average.4) Corn OptionOn 12/10/15 I sold a $4.00 May corn call for 10 cents. On 4/22/16 the price of corn was below $4 ($3.71), which means this option was not executed and I keep the premium (10 cents).Earlier last week I sold a $4 Sep corn call for 20 cents. I wanted to keep my options position the same and continue to sell strike prices that I believed were good sales in the past. What does this mean?If corn is below $4 on 8/26 then I keep the premium and move onIf we are above $4 on 8/26, then I have sold at $4, but also keep the two call premiums 10 cents and 20 cents (i.e. $4.30 against Sep futures)There is some risk in the Sep/Dec corn spread, but usually the Sep/Dec spread eventually trades at a carry when harvest begins (meaning an additional 10 cents potentially). I acknowledge my risk and am willing to except it on a limited amount of bushels.5) Corn OptionOn 2/19/16 I sold a $3.70 May corn call for 10 cents. Corn closed above $3.70 on 4/22/16 ($3.71), so I now have a short May future at $3.70. However, I still get to keep the 10 cents premium from this trade (and an 8 cents premium from a previous trade that expired on 2/19/16). This trade is now worth $3.88 against the May futures.6) Corn SpreadI had to roll this May corn short from #5 option forward. I chose July because the spread beyond was not wide enough given the large carryout of corn left in the US. So again I bought my May futures back and sold July collecting 5 cents carry. Now my $3.88 trade is worth $3.93 against the July futures. Again, I have risk in the spread between July and Dec, but I’m comfortable based upon the information I have today.My marketing strategy has always been to keep my choices open and take advantage of opportunities as they become available. The market can go up, down or sideways.33% of my crop is sold against futures that provide floor protection (if the market goes lower)33% of my crop is tied up with option sales (these work best in sideways markets)33% of my crop is unpriced, allowing for upside potential if the market ralliesI want the market to go up, but I’m protected in case it doesn’t. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. 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