Soybean Prices Might Surge if History Repeats Itself
Soybean Prices Might Surge if History Repeats Itself
Soybeans hit a three-year low
- Soybeans hit a three-year low as February trading wraps up.
- Shorts might be exhausted as COT shows near-record positioning.
- Trading a long call spread offers way to play while limiting risk.
Soybean prices (/ZSH4) fell 0.5% on Tuesday through afternoon trading, putting the commodity at fresh three-year lows and extending a multi-month downtrend. Since November, soybeans have been down nearly 20%, as an oversupplied market fuels bearish sentiment.
Soybean short squeeze in the cards?
As of Feb. 20, according to the most recent Commitments of Traders report (COT), speculators held 261,000 short contracts in soybeans. That was the biggest short position since May 2019, when specs were short 262,000 contracts.
Bearish pressure on soybeans may be near exhaustion, Fir a hunt, we can look at how prices behaved the last time this many shorts were in the market for soybeans. From the May low in 2019, prices rallied nearly 20% over four weeks. During that time, short speculators cut their position in half. The phenomenon is known as a short squeeze, where shorts need to buy back their positions to close their shorts as prices rise.
Today, we’re looking at a possible repeat of what happened in 2019. While it isn’t a certainty, and picking lows in the market typically turns out to be a fool's errand, the extreme positioning among traders makes this play enticing, given the potential squeeze. Plus, it’s always fun to participate in a squeeze when you’re on the right side of the market.
That said, it’s important to make the appropriate play and not expose yourself to outsized losses if the thesis turns out to be wrong. After all, even if a squeeze does occur, a 2019 repeat isn't guaranteed, and the fundamentals remain bearish.
According to the USDA’s latest oil crops outlook report, soybean’s season-average farm price was cut 10 cents from the month before $12.65 for the 2023/24 marketing year due to extreme competition from Brazil and weak export expectations. The next big market catalyst for grains will be on March 8, when the USDA’s World Agricultural Supply and Demand Estimates (WASDE) crosses the wires.
Trading soybeans
In this case, a defined risk trade makes sense, especially for those who don’t have very large accounts.
An example would be Katie’s trade today, buying the April 26 1,1130 call and selling the 1,1150 call. This trade, as of Tuesday afternoon, cost 9.875 to put on with a 54% probability of profit (POP) and a max profit of $506.25 and a max loss of $493.75.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.