Soy Meal/Bean Oil Spread
For the last couple of months, we have been waiting patiently for a rally to materialize in the December soy meal/bean oil spread. The hope was that we’d see a rally back to +$13,500 (premium meal) so we could initiate a short position. Since the spread had spent several months oscillating back and forth over the +$13k mark, the trading plan was to initially get short on a rally and then implement a reversal system.
Initially, we figure the rally would be just one last ‘hurrah’ before the soy meal/bean oil spread rolls over and heads back down to the ‘even money’ area. However, a clean breakout to new highs could set the stage for a stellar return to the 2014 summer high of +$24,726 on the weekly nearest-futures chart. Either way, we expect a move of several thousand dollars per spread.
After today’s big acreage report came out, the grain markets exploded higher. This elected the entry criteria on the short side. The blog theoretically sold one 100-ton December soy meal soy meal contract at $340.70 (a contract value of $34,070) and simultaneously bought one 60,000 lb. December bean oil contract at 34.01 (a contract value of $20,406). This opens up a short position at approximately +$13,664 (premium meal). Time will tell if we were the smart money who sold the rally up here or if we really stepped in it. Either way, we have a plan to trade both sides.
We are going to exit this short position and simultaneously initiate a long position on a close above +$15,500 (premium meal). If that happens, we will use a close back below +$13,500 as our criteria to reverse back to a short position again. For now, we will leave parameters in place to trade the December soy meal/bean oil spread with a reversal system. Simply put, we will always be long on a close above +$15,500 and always be short on a close below +$13,500.