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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.

End of the Short Squeeze

May 14, 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.   

In the last few weeks corn and soybeans have been supported by strong May contracts.  May corn and May soybeans have been in the delivery period and there had been no deliveries.  In the mean time, commercials looking to source grain have put pressure on those who have held short contracts pushing May corn 70 cents higher and May soybeans $1.20 higher.  This short squeeze has been a major supporting factor for corn and Soybeans.  But now that May contracts are off the board and the July contract are over a month away from their delivery period what should we expect now?  

The May-July corn spread ended at 54 cent premium to May and the May-July soybeans spread ended at $1.10 premium to May.  This is a big discrepancy and suggests a strong cash market and a strong basis.  This has been supportive to the grain complex as a whole.  However, with the July contracts being a ways away from delivery period this positive effect on markets could be diminished.

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

Another question is if the cash market will stay as strong as it has been.  It would seem to me that producers are waiting to sell much old crop corn until they know they have a new crop planted.  As of Monday we were only 28% planted according to the USDA.  Soybeans have been very strong, but incoming shipments from South America could start to fill demand needs and bring lower cash prices.  It could be the case that cash prices are peaking for awhile.  

So, with the short squeeze in the May contracts out of the way some of the support to futures prices could fall away as well.  Cash prices could also be hitting a peak soon with better opportunities to plant and the potential for South American Imports.   

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

If you are looking for ideas or want to talk strategy feel free to give me a call or shoot me an email, you will find my contact info below.

December Corn Daily chart:

November Soybeans Daily chart:

December 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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