The Ted Spread
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.
Soybeans are on a Mission to Price Ration Exports
Nov 12, 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.
January Soybeans have rallied more then 70 cents off of last weeks lows. The USDA report came in mostly as expected for the US balance sheet and with a slightly bullish number for the world ending stocks. So, for a neutral to slightly bullish report this has been a very positive reaction. Why are soybeans so strong, and how long could this last?
The two biggest factors that will give the soybeans direction in months to come will be South American weather and exports. So far South American weather has been pretty good. There had been some dryness concerns for parts of Argentina but recent soaking rains have put fears to rest for the time being. Brazil has had mostly favorable weather so far but there are some areas that did miss out on rain this past weekend. Rains in the forecast for this coming weekend should keep dryness concerns at bay but if dry areas would miss on the rains again concerns would grow. South American weather will have to be watched closely as their growing season progresses as any problems would translate into more global demand directed at the US and likely higher prices as well.
For the moment exports seem to be the key driver of the strength in soybeans. Export sales as of October 31st have totaled 1.221 billion bushels compared to 953 million last year at this time. The USDA increased export demand for soybeans on the November 8th report by 80 million bushels to 1.450 billion. So, the concern is that we are approaching the current USDA estimate with a lot of time left in the marketing year. However, export shipments as of October 31st have totaled 334 million bushels compared to 360 million at this time last year. Part of the reason for this has been a slow harvest pace.
Going forward the market will keep a close eye on export sales. In particular the market will be watching to see if higher prices will slow soybean sales. Because soybean export sales to date are at 84% of the newly increased USDA soybean export estimate there is a perception that there is a need for soybeans to price ration export demand. Many analysts are suggesting that soybean exports will need to be increased by 30 million bushels and that ending stocks are closer to 140 million bushels. This could be the case if export sales stay strong and export shipments start to catch up with the sales numbers.
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
It will be interesting to see the effect that the 70+ cent rally in soybeans will have on export sales. Many times the first sales report after a rally shows strong sales. This likely happens because buyers see prices going up and they scramble to book their immediate needs. However, in the weeks to follow global buyers may choose to wait to see how South America's growing season progresses with hopes that they will be able to buy soybeans cheaper in March - May. If sales stay strong despite good South American weather it could signal that China and other global buyers are simply out of grain from the last few years of global production issues and are simply buying everything they can.
Export shipments may be the key however. It could also be a possibility that global buyers remember what happened last year when the US had a major drought, or the year prior when South America had a major drought. Buyers may be cautious about this South American growing season knowing that if there are any major production issues the US will not have enough soybeans to go around. So, some of the sales could really be a hedge of sorts. It is conceivable that countries like China might be making purchases in case of problems and higher prices with the intention to cancel or switch them later if everything goes ok and prices simmer down. The key to knowing if this is the case will be shipments. Shipments have a long way to catch up to sales at this point, but if they do soybeans will likely have to work harder to price ration US supplies which could result in higher to sharply higher prices.
At the moment, our feeling is that some of the strong export sales we have seen to date are precautionary in nature and may never get shipped. However, we will be keeping a close eye on shipments and South American weather as they may hold the key to soybean price direction.
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.
December Corn Daily chart:
January 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. 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 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.