Soybean Mar/May spread splits 90 day negotiation deadline.

ABSR Research: Chart of the Day

The 90 day trade negotiations are assumed to “unofficially” end Feb 28, or effectively first notice day for the March 2019 futures contract. This puts the soybean Mar19-May19 futures spread squarely into focus as the deadline date could ultimately be the pivot point if a deal in not reached sooner. This spread is already steeper (more negative) than by recent historical standards but could move steeper each day a deal is not reached and the deadline nears. By contrast, a deal if done soon would be expected to flatten the forward curve so long as it were to include “immediate” actions. My personal feeling is ultimately a deal will be reached…but only after considerable posturing from both sides and some ugly whipsaw markets for the next several weeks. Selling the spread (Sell Mar19 & Buy May19) has an attractive risk reward profile, especially for holders of the physical commodity. Our chart of the day shows the spread today in comparison to last year and the four year average. Risk of this spread narrowing back toward the average (-6 to -8 cents) is certainly possible, but not probable given that any deal is likely to have a lag effect. In addition, if an agreement were made soon, it would benefit soybean prices outright. On the flip side, the longer trade negotiations are prolonged the more likely lower prices will prevail and the curve steepen (become more negative). The are also calendar option versions of this position that may be equally attractive.

Shawn Bingham, CAIA

Source(s): ABSR Research, Commodity Systems Inc.

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©2018 ABSR Research LLC. All rights reserved. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The materials and data on this site are provided on an “as is” basis and without warranties of any kind. While every effort has been made to insure the accuracy of the information, no guarantees can be made that the information is full, complete, or accurate. Performance information with regard to the ABSR Indices contain a significant period of Pre-Inception Performance (PIP) history. Users should be aware of the limitations of this type of data.