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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.

Hey China, Is the Low in for Corn?

Dec 17, 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.        

Grains pricing is seemingly so dependent on China these days, and once again China may hold the key for price direction in corn.  Recently, March corn has found strong support at $4.20.  In the last 30 days March corn has tested lows three times and on all three occasions has failed to post a close below the key $4.20 level.  Now, corn has a potential triple bottom in place, but the China GMO situation may ultimately decide corn's fate.  

Since November 18th, March corn has tested the $4.20 level three times and all three times has come back strong. From a technical perspective corn may now have a triple bottom formation in place.  Furthermore, corn has broken the neat and tidy mid-term downtrend line it had been following closely since the beginning of September and has seen the 9-day moving average cross above the 20-day moving average for the first time in three months.  All this could be suggesting that corn might be done going down for now.   

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

Fundamentally a lot has changed since corn first tested the $4.20 level back on November 18th.  The USDA ending stocks projection (while still a big number) has come down 95 million bushels on the back of strong export and ethanol demand.  Ethanol in particular has been a positive for corn.  Profit margins are good, production is strong and stocks are low despite the EPA proposing to ease the mandate.  Relatively high crude/gas prices and low corn prices seem to be a winning formula for corn used for ethanol.  Exports have been positive too, at least until China decided to refuse some cargoes (7-12 of both corn and DDGs) on the grounds of finding an unapproved GMO strain.  Coincidentally (or maybe not) China's corn production has been coming in better then expected.   

So the question is - are the refusals of corn and DDG cargoes isolated incidences or is China looking for reasons to cancel shipments?  If China stops buying US corn or begins to refuse US corn and DDG cargoes on a bigger scale then corn prices may need to go significantly lower to bring back demand.  However, if these refused cargoes have been "one off" situations and China continues to by US corn then the worst news in corn may be behind us for now.  Again, it is important to temper any expectations for a strong rally in corn because stocks are still large but it could be possible that corn prices drift higher until spring - that is if China doesn't ruin everything.  

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

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.     

March Corn Daily chart:

January Soybeans Daily chart:

March Wheat Daily chart:

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. 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

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie

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

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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