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Commentary

Soybean futures found support over the last several trading sessions on a potentially warmer and drier pattern developing across the western crop belt heading into early August, just as soybeans approach the critical pod-setting stage. However, good soil moisture in many areas of the crop belt may mitigate some of the effects of the coming weather shift. Crop conditions ratings remain historically strong after a near perfect first half of the growing season. Last week's bean ratings rose to 70% good to excellent. Timely rains and mild temperatures boosted early development, and most fields are entering August with solid yield potential. However, a shift toward heat and dryness during pod setting could reduce top end yield potential, and the market is now pricing in some weather risk premium. I'm looking at some calendar spreads in meal and beans that are oversold in my opinion. One spread I highlighted was the Nov 25/26 soybean spread. The spread was inverted earlier this year at 20 cents November 25 over in February. By early June it traded back near parity. When all the weather and geopolitical premium was taken out of the market, in late June, the spread fell out of bed.  The spread traded to a deep carry at 41 cents Nov 25 under in early July. A drop of over 60 cents from February but more importantly in my view a drop of 40 cents approximately from early June. Todays close was at 31.6 cents under. It is my opinion that if beans rally this spread could trade back to where it came from, to parity very soon. Weather though will be the key determinant as always in my view.

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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