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The Ted Spread

RSS By: Ted Seifried, AgWeb.com

Ted is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group and specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations. He believes it is paramount to be able to use different strategies to adapt to market conditions. Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.

Are We Setting Corn Up for Failure?

Apr 09, 2013

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS 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.   

As I look at the average trade guess for corn ending stocks going into the April USDA supply/demand report I have to wonder if we are setting the corn market up for another bearish report.  Two weeks ago the USDA gave us a momentous shock with quarterly grain stocks coming in 400 million bushels over expectations.  This means either we grew much more corn then we thought last summer, demand is much less then we were expecting, imports are much stronger then expected, or all of the above.

Now, going into tomorrows monthly WASDE report the average trade guess for old crop corn ending stocks is 812 million bushels.  This would be an increase of 180 million bushels from last months USDA estimate.  This is no doubt that this is a huge month over month increase, but shouldn't it be even more?  Where does the other 220 million bushels that we underestimated on the stocks report go?

CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie

Since the stocks report I have been saying that the full 400 million bushels will not find its way onto the ending stocks number.  With the sharp drop in prices that followed it would seem logical that the USDA would look at this as awakening some demand.  Based on price action the market seems to have priced a vast majority of the 400 million bushels going back onto the balance sheet.  But now we are looking at an average trade guess of 812 million bushels.  To me this is an average analyst guess, not an average trade guess.  I think the market could have factored in a 950 million bushel cary over number.

More demand certainly seems possible.  However, corn used for ethanol continues to fall behind the current USDA estimate by 2-4 million bushels a week.  Corn exports are continuously terrible historically.  And, if there was huge feed demand out there it should have been reflected on the stocks report.  The bottom line is that the USDA sees more corn out there, a lot more.

There was likely better corn production then anticipated last summer, despite the drought.  Imports were also probably stronger then expected over the last few months.  These changes alone could give us a number higher then the "average trade guess".  I was hoping the trade guess was in the low 900s so that there was a chance for a bullish report, but with these guesses I am worried we are set up for failure.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

May Corn Daily chart:

May Soybeans Daily chart:

May Wheat Daily chart:

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have corn near $7.00 and soybeans near $14.00. Give me a call for some ideas. In particular, 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 tseifried@zaner.com

Please check out my Blog at: http://tedseifriedfutures.com/

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

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