Properly Trading the Soybean vs Corn Spread

The soybean versus corn spread has received a great deal of justifiable attention this year and the current spread between the two markets is still near its all time highs. The last statement however, generates as many questions as it answers. We’re going to look at some of the difficulties in quantifying this spread trade, place it in its historical context and walk through the math so that the next time someone mentions this, you can determine if they’re comparing current crop soybeans versus corn or, if they might as well be talking about apples and oranges.

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Compressed Agricultural Commodities Set to Spring

The agricultural commodities produced and traded domestically have all fallen precipitously through this summer’s growing season. Maximum planted acreage and ideal growing conditions have combined to drive many of the agricultural commodities to multi-year lows. In fact some of the technical readings these markets have been registering are just as shocking as the growth in many commercial traders’ positions. Since no individual market really stands out, we’re going to discuss the current state of these markets while attempting to get a hold on what it means going forward.

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Commercial Traders Support Wheat’s Seasonal Bottom

The Chicago Board of Trade soft red wheat contract has declined by nearly one third since the early May high near $7.50 per bushel in the current September contract. The mild summer has brought with it the classic seasonal May-July sell-off. We believe that this market may be ripe for a bounce based on demographic, seasonal and technical factors.

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Soybean Decline to End with USDA supply & Demand Report

The USDA reports their global Supply and Demand figures this Friday at noon Eastern. This report frequently sets the tone for the rest of the year with the fast and wild action affecting the beans in the bin while the long-term effects play out on the beans in the ground. There’s no denying the seasonal effects of this report on both markets. Post June USDA Supply and Demand leads to one of the most predictable declines in seasonal market forecasting as beans fall through the end of July. Finally, the table is already massively stacked against bean prices with record acreage being planted with the expectation of record yields. Barring any unforeseen weather catastrophes, which are unlikely in our part of the world in an el nino year like this one, the 2014 US soybean crop should be a record setter by a wide margin. But….

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Commercial Traders Pressure RBOB Unleaded Futures

rbob unleaded gas commercial trader sell signal
COT Signals commercial trader sell signal for RBOB unleaded gasoline.

We published this short sale in RBOB unleaded gasoline Monday night for COT Signals subscribers and followed it up with commentary for Equities.com on Tuesday morning. You can read, “Are Rising Gas Prices a Trading Opportunity?” at Equities.com. You can see the effects of commercial traders buying and selling RBOB unleaded gas and the summertime peak gas price on the chart we posted at COT Signals.

This trading setup is a classic Commitment of Traders Sell signal and shows why we use the CFTC Commitment of Trader reports as the primary basis for screening our trading opportunities. Follow the links to see how we do it or better yet, call us and ask us how.

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False Breakout in Gold and Silver

Gold and silver have both traded higher since early June. We began noting the commercial traders’ accumulation in the gold market back towards the end of April. As usual, the market had one more move left in it before confirming its bottom. Just as we suggested that retail traders were likely to be forced out by one more flush due to some index selling triggering small stop loss order running. This is the typical capitulation pattern in the futures markets. Gold has rallied more than 7% over the last month and silver has climbed nearly 14% in the same time frame. This rally has pushed the market towards some important technical levels. The question I’ve been asked the most is, “Should I buy the metals, now?”

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