Reuters — Soymeal traders have been bracing for a steep decline in U.S. meal prices for the past several months as a record-large soybean crop was planted and grown. Indeed, traders racked up large positions in bearish put options tied to December soymeal futures throughout last summer, indicating widespread expectations that U.S. meal prices would sink heavily heading into 2015.
But due to stuttering harvest progress and bottlenecks in rail capacity many options traders are rolling their bearish bets into the January 2015 contract, indicating that any meal market meltdown may now be delayed until the New Year.
The record-large soybean crop currently being harvested across the U.S. has long been viewed as an inevitable wave of fresh bean and soy product supplies destined to descend on domestic and international markets before the end of the year.
But while more than 70 per cent of the U.S. crop has now been gathered, a mix of harvest delays and a push by many farmers to store rather than sell their soy crop has meant that U.S. soy processors have not been inundated by fresh supplies to the degree or as quickly as expected.
This stall in availability has put some meal suppliers and exporters in a bind, and fueled a roughly $90 per short ton rally in front-month soymeal futures since Oct. 1 as processors stepped up competition for those cargoes that were available.
The meal market rally in turn widened December 2014 crush margins from $1 a bushel to more than $2 a bushel so far this month, triggering even more competition for spot soybean supplies.
And while the more urgent tone of buyers and higher bid prices have unearthed larger waves of fresh supplies being offered by growers, slow freight movement from the farm to the processor means there is a continuing lack of fresh soymeal supplies throughout the country.
And judging by the forward rolls of defensive options positions from December to January, traders don’t expect that tightness to be alleviated any time soon.
Finding a floor
While December soymeal prices have rallied nearly 30 per cent since the start of the October from around $300 to close to $400 a short ton, they remain off their 2014 highs as the impressive scale of the 2014 soybean harvest curbs overall market momentum.
That said, the recent advance in meal futures has given growers and suppliers of the market a chance to lift their selling price, which many seem to be doing via the options arena.
For the December time slot, savvy meal suppliers have used the recent meal strength to lift put positions from the $320-340 a ton area to the $360-370 region.
For the January time slot, buying flows have been strongest at the $330 and $340 strikes, although more than 1,600 open positions are also in place at the $350 mark.
Indeed, January put option purchases have aggressively outpaced that seen in December options lately, suggesting that a majority of participants anticipate the current spell of meal market tightness to persist for the next several weeks, before dissipating early in 2015 once processor pipelines eventually get replenished.
Gavin Maguire is a Reuters market analyst. The opinions expressed are his own.