Trade Idea: Soybean Meal

GRAINS

We have been watching a soybean meal spread over the last few weeks and we are at a high probability spot to sell this spread. Front month soybean meal is trending higher with soybeans, but we are starting to see some weakness in soybeans and we think soybean meal will follow. On top of that we have a strong seasonal pattern and typically we see demand for soybean meal decline in mid to late summer months.

Trade Idea: Short October/Dec Soybean Meal- The seasonal pattern is highly correlated with the 5 year and 15 year price average patterns. Historically this spread has traded as high as $10.00 before the seasonality start date, and thats looking at data since 1985. The 15 year price average is around $4.00 to $4.30. Now we don’t usually refer to average price, but in this case we will because the technicals are setting up with agreeing fundamentals. Looking at the spread chart we think the resistance area around $4.00 would be a good place to take the initial position. We have an open order GTC at $4.00, our risk will be $600 per contract.

MEAL

Win%———-93%  14 out of the last 15 years trading this spread

Days in Trade———57

Worst Down————–($140)

Best Up——————$272

 

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One thought on “Trade Idea: Soybean Meal

  1. As Ronald Reagan once said: “Here we go again!” But really. Thanks again for alerting us to an interesting chart. But I see a situation here exactly like the LH spread you sold at $4.00 only to watch it pop right through what you would be the second lot entry at $5.00. Best play there would have been to BUY it at $5.00 and basically not risk anything by using a trailing stop.

    You see a top because of data from Moore, which you trust. All I can see is your one chart and a historical top of $10.00 on the spread … and my knowledge of beans being in hugely powerful rallies easily blasting through resistance when money gets flowing in from investment funds who kept a rally going even without support from weather a few years ago. Turning your trade idea into a hoped-for top failure makes your chart into a bullish coiling wedge.

    Every good trade idea has it’s opposite, which you stated by saying you’d risk 60 ticks or -$600 or a price of $4.60. Wow. If you happen to get stopped out at $4.60 I’d be looking to go LONG as low as I could. Think about it.

    All the classic books on markets say never try to pick a top. But you nonetheless are clearly drawn to the thrill of trying to do just that.

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