TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
Brexit is the term that refers to the possibility of the United Kingdom leaving the European Union. In the last few weeks there has been debate in and out of the UK about what impact Brexit might have on the UK and the global economy. June 23rd was decision day for the UK public. While it may not seem like a vote in the UK will have an impact on the corn market it certainly can and may already have.
From a global market standpoint the market analysts think that if the UK were to leave the EU it would have a negative impact on their economy and currency. Outside of the UK Brexit would weaken the EU, the EU economy and possibly the Euro. So, if the British Pound and the Euro are weakened by a "yes" vote for Brexit it could have a significantly bullish effect on the US$ and put pressure on commodities as a whole. Going into the vote polls showed an almost 50-50% chance of Brexit.
Sign up for our Morning Ag Hedge newsletter! Sign up here: http://www.zaner.com/landing/ag_hedge_newsletter.asp
So, the Brexit decision may have an impact on the corn market. However, we may have already seen a substantial impact on corn from Brexit before the vote even began. Commodity firms and exchanges we raising margin requirements on certain futures contracts that they believes could be highly volatile after the Brexit announcement. This alone may have had a big impact on corn.
While corn margins remained unchanged from the exchanges it is important to understand how many of the large speculators work. In general funds will have a certain percentage of a commodity or currency or equity that they would like to have in their portfolio. And, when margin requirements go up on one or more of those contracts they have to decide if they would like to margin up or reduce the position. In many cases the simplest route is to reduce positions. However, when they are reducing positions in some contracts it can throw the balance out of whack and to rebalance they may need to reduce positions else where as well.
So corn, even though corn margins did not go higher, may have found some fund liquidation based on a rebalancing of their position. There is also the idea that many of the large speculators were looking to lower their risk before the Brexit vote. This may have contributed to some fund selling as well.
I am by no means saying that this is the only factor driving the sharp drop in the corn market this week, but I am saying that it hasn't helped. Weather forecasts have gotten less threatening for some areas and the market responded by pulling some premium out. But, the fund liquidation may have been happening for many reasons. It will be interesting to see what happens once Brexit is behind us. Will the funds want to return to corn and commodities as a whole?
*Side note, fun game - drink when you hear Brexit. If that's you sort of thing. I for one am tired of saying it.
*My boss says drink water
We have some complimentary 2016 commodity reference calendars available. They are a little bigger than pocket sized and very useful if you follow markets. (Shipping to the US only)You can sign up for yours here - http://www.zaner.com/offers/calendar.asp
Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.Follow me on twitter @thetedspread if you like.
JulyCorn Daily chart:
JulySoybeans Daily chart:
Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie
Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.
FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.