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.
Win%———-93% 14 out of the last 15 years trading this spread
Days in Trade———57