After a long wait because of the U.S. government shutdown, traders finally got the latest WASDE report. The report ended up being more bearish for corn prices and more bullish for soybean prices. It showed that the production and yield per acre in corn was above expectations while the production and yield per acre were lower-than-expected in soybeans. Ending stocks in each product were below what was expected. On the surface, this appears to be bearish corn prices and bullish soybean prices.

While the WASDE report helped traders’ hone in on the supply of soybeans in the current crop, another pressing issue the last several months has been the demand for soybeans. Noticeably absent for most of the year until recently has been China, the largest buyer of soybeans in the world. Initially it was purchases of soybeans from Argentina when that country relaxed export tariffs, but that went away when the U.S. Treasury bailed out the Argentinian peso. Consistently taking share from U.S. soybeans the last several years has been Brazil, as their soybeans are priced at a discount. There was hope that with a possible U.S.-China trade deal, which ultimately came to fruition, China would buy U.S. soybeans to ameliorate the U.S. administration. A recent story in Bloomberg news highlighted how despite the U.S.-China trade truce, China’s purchases of U.S. soybeans have stalled. The story highlighted how Chinese expected demand was thought to be much lower than originally expected, not because of trade frictions, but because China’s ending stocks of soybeans, mainly bought from Brazil, are higher than at any point in the last year. 

Having rallied sharply after the breakout above resistance levels that had help the entire year on the back of the U.S.-China trade deal, front-month futures continued to rally into the WASDE report. While the report was clearly bullish for soybeans on the supply side, given the recent move, and perhaps because of some build-up of negative sentiment, there was a clear “sell the news” price action after the report. Having hit a high near 1150 before the report, futures were down to 1127 at the time of this writing. While the price action is still bullish, it appears there may be some consolidation in order with the current supply and demand news now well known.

Even as prices rallied, managed money did nothing to change their positions. In fact, in the latest Commitment of Traders report, managed money had added to the net short position. While this short position is nowhere near the short that had accrued in the summer of 2024, it is still near the shortest traders have been in this calendar year. Is there a potential for this positioning to flip from the short side to the long side, where it was earlier in 2025?

Turning to the implied volatility markets, it is time to look at the level of implied volatility and the demand for upside versus downside options. In the top chart, one can see from the CVOL tool that implied volatility is elevated, near the highest levels seen in 2025. It is off the highest levels seen before the U.S.-China trade talks but is still quite elevated.  In addition, the skew ratio, which measures upside variance vs. downside variance, or a measure of relative demand for upside options vs. downside options, is also elevated. A level of 1.0 would show balance but the current reading is closer to 1.10. Again, it is off the highest levels seen in June when futures were much lower and in late October, when bullish positioning ahead of trade talks drove prices. The current level is above the average for 2025 suggesting upside options are only moderately at a premium to downside options.

A scan through the implied volatility surface on QuikStrike can identify the expiration where there may be opportunity because it appears relatively mispriced versus other expirations. If you look at the volatility surface, focus on the ZS1Z5 contract. This is where implied volatility starts to drop off. The early contracts are elevated because they are very short-dated contracts. The ZS1Z5 has some time to expiration still (25 days) but still has a premium over the contracts 1 month and longer. In addition, one can see that the skew is a bit flatter in this expiration versus the expirations that come before it.

Putting this together into a trade idea, the focus is on ZS1Z5 expiration. Volatility is a little elevated but not extremely so. This suggests a spread is preferred versus simply buying options as there is the risk of an implied volatility crush going into the U.S. holiday season. The supply news is positive, but the demand news may be turning slightly more negative. However, despite that, the technical price action is still very supportive of higher prices in the future, having broken above resistance at 1080. Previous resistance should turn into support.

The idea here is to have long soybeans via the options market. As volatility is elevated, I look to sell the at-the-money 1120 puts. Because I want to have some protection on the downside, I buy the 1080 puts, because if this level breaks, the bullish technical setup is over. I use the premium from the 1120-1080 put spread to buy 1160 calls. The measured move on the wedge pattern breakout is 1160, arrived at by looking at the height of the wedge (1080-960) and adding that to the level from which it broke out (1040). While that almost happened this week, futures have pulled back and given another opportunity for a bullish idea.

The trade costs are basically zero so if the market doesn't get to 1160, I won’t lose money. If things move higher quickly, there could be the opportunity to trade out of the position at a profit even if it doesn’t break 1160. Of course, above 1160, gains are unlimited. The risk of the trade is fixed to the distance between strikes of 40 (1120-1080). So for a fixed risk of 40 ticks, I have unlimited potential gains and the possibility to trade out sooner. It is capital efficient with no net premium and fixed risk.

Identifying and implementing good reward to risk trades is the hallmark of the CME Group platform.

Good luck trading!

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