Grain Spreads: ZSN24/X24 Examined
Commentary
It is my belief that worries about crop loss in Brazil have caused the producer movement to slow and hold off for higher prices. Port basis in Brazil climbed another 13-15 cents per bushel today, leading the US futures market higher. But the gains have been in the old crop/new crop spreads. I highlighted July/Nov bean chart below. Soy oil continues to get strength, some from short covering and rallies off of bearish meal crushing data this week that showed lower than expected bean oil stocks. This is providing some support for soybeans, amid the flooding rains that in my view continue to negatively impact soybeans in southern Brazil. Much of the run higher in July beans has been on short covering. There seems to be an inflationary vibe in the market amid a reinflation trade that has fund managers short covering. The end of April saw funds net short 150K, as of todays close we see their net short at 28K. The reinflation trade theme has started in precious and industrial metals. See Gold and Silver. It is now slowly spilling over to energy as Nat Gas and Crude put in nice gains this week. We have seen funds aggressively short cover corn, wheat, and beans while extending their long in meal. July/Nov spread chart below. Outright July soybeans have support at 12.13. A close below and we could trade to 11.98 and 11.88. A close below 11.88 and its katy bar the door to 11.51. Resistance is at 12.34 and 12.47 A close over 12.47 and the market could push to the 50-week moving average at 12.76. A close above there and the market could challenge the gap at 1291-1297.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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