Traders have likely noticed the considerable strength in Soybean futures prices in 2026, with the generic front-month contract rallying from 1025 to 1165 since the start of the year. After a tumultuous 2025 when prices struggled to rally until late October and it was announced that China would indeed buy soybeans from the U.S., albeit a lower amount than usual (only to collapse at the end of the year), a steady rally is a welcome respite. However, this rally is in the face of a record Brazilian crop expected to be harvested. Can the strength continue? The trend in the Ichimoku cloud is starting to point higher, a sign that traders are accumulating longs at higher prices. In the face of that, the RSI shows overbought conditions and the MACD, which had crossed over and turned higher in early January, is showing signs of crossing back lower. Are there some warning signs?

Trader positioning and length has grown on this rally. Managed money positions are near the highest of the last five years, eclipsed only by the length seen in early November of last year. The net positions have grown combined by a combination of shorts reducing and longs getting added to. This is happening as prices are at the highs that we saw last year. Could the combination of extended positioning and higher futures prices again prove dangerous for traders? It is quite possible as the last time we saw this amount of length in soybeans was back in 2022, another time when prices shot higher as the result of a war. Could high prices and considerable length from managed money again be a risk factor to markets?

The USDA Prospective Plantings report came out on March 31. In it, we see that soybean acres are expected to move up 4%, and corn acres were expected to be down 3%. These numbers were each only slightly higher than expected. For many, this came as a surprise. Why? Many thought that the closure of the Strait of Hormuz, shutting in nitrogen exports, could impact the decision to plant more soybeans and less nitrogen-hungry corn. However, as the data was released, news trickled into the market that U.S. farmers had largely pre-bought their fertilizer for this year, and there were few farmers left to be exposed to the price spikes in fertilizer. While there are likely some, and those may choose to switch to soybeans from corn, it was not as much of a shift as feared. As a result, this reduced some of the supply concerns from the rotation. The bigger issue for soybean markets could be the demand for the product, coming from both China and from biofuel. 

A big mantra for the soybean market last year was that prices were below the cost to grow soybeans, thus farmers had no chance to make money. While prices have risen to the highs of the last 12 months, are soybeans profitable yet? Based on a report from Purdue University, it does not seem that is the case at all. This report suggests that the cost per acre is about $12.30 on average, with costs ranging from $11.59 to 13.20 based on the productivity of soil. These figures reflect the total cost per production which does include opportunity costs. As you can see in the lower chart, there is some ability to get these costs a bit lower, but I think it is fair to say that at the current $11.57 price of a bushel, there is not a lot of breathing room for farmers to earn much from their harvest. Could this mean that farmers may be more inclined to hedge their harvest more aggressively early in the year in order to lock in some amount of profitability and reduce the risk of loss as seen last year?

It is time to turn to the volatility markets to see what types of risks are priced into the Soybean options. We see in the top chart that Soybean implied volatility as measured by the CVOL Index is essentially near the bottom of the last several years and is not showing any signs of stress or concern. Looking at the bottom chart, which shows the skew ratio or the relative pricing of upside vs. downside options, there are more signs of elevated concerns and/or flows. The current skew ratio is at 1.12, which is high, but off the high over 1.20 seen a couple weeks ago. That 1.20 level was the highest seen in the last three years, but a level that has been touched a few times, most recently in the aforementioned November 2025 period when prices rallied after the Trump-Xi meeting and traders were similarly long. The elevated skew ratio does seem to suggest that there is not a heightened demand to hedge downside risk to prices ahead of another Trump-Xi meeting which is set to take place in the middle of May. The options market is indicating no signs that traders or farmers are concerned about a disappointment from the negotiations between the U.S. and China in regard to soybean purchases.

Could it be that traders are not worried about the meeting? In fact, that is not the case at all. We can assess this by using the Event Volatility Calculator, which looks at options expiring before and after the date of the meeting to determine how much incremental volatility is priced into the options market for the Trump-Xi meeting which runs from May 14 – 15. From this, we see the implied event volatility is just under 40%, almost triple the base level of volatility which is in the 13 – 14% range. This is even more apparent when we look at the term structure of implied volatility in QuikStrike. Plotting the expirations around the meeting, we see the options expiring just before the meeting – ZS2K6 expiring May 10 – are depressed relative to the following Friday in May (ZS3K6) and even relative to the April options expiring weeks before. It would appear the market is expecting calm as we head into the meeting and then more volatility coming based on the meeting. Combining this with the skew ratio, that expected volatility appears to be more on the upside of the market and not the downside. While it is difficult, if not impossible, to try and have an edge in predicting U.S. administration decisions, history does tell us that there are often headlines before, during and after these types of meetings, so depressed volatility before the meeting appears to be an opportunity.

It is clear that there is a large amount of volatility priced into the meeting between Trump and Xi for May 14 – 15. In spite of that, overall levels of volatility are on the low side relative to history. There also seems to be a fair bit of enthusiasm for a positive outcome of that meeting if we look at two critical pieces of information: the Commitment of Traders report and the skew ratio. The former shows that managed money is as long as it has been in five years. In addition, we see the demand for options on the outside outweighs the demand for downside at one of the highest rates of the last three years. Does this set the market up for disappointment? More importantly, if we do get disappointed, would it come at the meeting or in the leadup to the meeting. When the last meeting between Trump and Xi, originally scheduled for late March/early April was delayed, front-month Soybean futures fell by 5% from 1216 to 1157. Could that happen again? Could it be more likely before the meeting than at the meeting?

Putting this together into an idea, I show above a ZS2K6-ZS3K6 1160 put calendar. However, since there is so much extra volatility priced into the latter date, plus getting the benefit of buying the shorter expiration, we are able to buy two puts in the ZS2K6 expiration and sell one put in the farther date. This trade does very well if there are any problems with the meeting: perhaps it gets delayed again, canceled or perhaps news leaks out ahead of it that the two sides can’t come to any agreement. If this is the case, the hope for Chinese soybean demand will dissipate and prices could fall by the 5% they fell before, or even more. This is the best-case scenario for this trade. The worst-case scenario is that nothing happens before the meeting and all of the bad news comes out at the meeting, causing prices to fall. That is because once our ZS2K6 options expire, this spread is naked short puts for the following week. That is the biggest risk for this spread. However, if there is nothing but good news ahead of or at the meeting, largely on expected Chinese purchases as part of some deal, this spread neither makes nor loses money because it is constructed to be largely premium neutral. One could choose to do this spread one up, taking in premium which then would cushion some risk if bad news happened later, or improving gains if good news happens. I created it two by one because overall volatility levels are so low relative to history, and because the meetings between Trump and Xi, and frankly any diplomatic meetings these days seem to be volatility events, particularly in the run-up to the meeting. 

Uncertain macro markets and geopolitical events can create a lot of risks. However, if traders analyze what the market is expecting, they can also find opportunities. Use the tools to analyze and the products to trade them at the CME Group to take advantage of these opportunities. 

Good luck trading!

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