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.
Will Fund Buying Run Soybeans to New Highs?
Apr 22, 2014
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.
Soybeans have been under pressure to start the week after scoring new highs late last week. So far this week funds have been net sellers, trimming their massive long position. Will this trend continue, or are they getting ready to come back in a big way?
The bull market was in full swing last week as July soybeans set new highs on Thursday in front of the three day holiday weekend. This strength was fueled by a March NOPA crush number that was almost 8 million bushels higher then expectations and set a new record for March crush. At the end of last week it seemed as though the market was determined to factor in a 115-120 million bushel old crop soybean carryover. However, after the long weekend it seems as if the market mentality has changed for the moment as the trade's focus has shifted to the possibility of China defaulting on 1.2 million metric tons of US and South American soybean sales, South American cargoes being switched to the US, and the possibility of more soybean acreage.
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The talk in soybeans the last few days has centered around Chinese buyers trying to cancel open Brazilian contracts and that some of theses sales may get resold to the US. News wires reported that 2 cargoes of Brazilian soybeans and 2 cargoes of Argentinean soymeal are on the way to the US. Talk that China may soon sell state owned soybean reserves has also added pressure. For new crop soybeans, news that corn plantings were only 6% complete compared to 14% as the five-year average has sparked talk that if farmers can not get corn planted in time there may be even more soybean acreage then the already record figure set by the USDA Prospective Plantings report.
In the midst of the bearish talk surrounding the soybean market the large speculators of funds have stepped aside and have been net sellers. This has translated to a 50 cent sell off from last Thursday's highs. However, this has now brought soybeans back to trend line support and could now start to draw attention from the technical traders looking to buy a pull back in an otherwise bull market. Large speculators could very well be waiting in the wings to aggressively buy old crop soybean contracts one again. It will be very interesting to see if and how strongly funds might come back at or near current price levels. So far there is no strong technical topping formation in soybeans and technical trades could look to defend long positions at this point. However, if soybeans can not hold current levels a bigger correction or fund liquidation event could follow. For now we are waiting to sell old crop soybeans to see what the funds do at key support levels, and we are thinking they could come in as bigger buyers again soon.
New crop soybeans could be a different story. With projected record world soybean stocks and projected record US planted acreage new crop soybeans prices could be at or approaching highs. Certainly we still have a growing season to get through and a major weather issue could keep soybean stocks tight, but given normal weather soybean stocks could be near the highest levels in recent years by the time the US gets into harvest in the fall. Now might be a good time to look at pricing strategies for new crop production.
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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. 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.