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 rallied over the last 2 months due to a market perception that the US is going to run out of soybeans this year. Strong export sales, specifically to China have largely been behind these fears. If this were the case however, why are commercials not allowing China to cancel US soybean shipments?
China has been a big buyer of US and South American soybeans in the last few months. They seemed to have been overbooking their needs in order to hedge against delays in getting the South American crop to port and shipped out figuring that if there were no issues they could just cancel. No such delays occurred so they went to cancel some of the US soybean contracts only to find that commercials would not let them out of their contracts. So, now China is scrambling to cancel South American cargoes as well as find new and interesting ways to get out of contracts with the US. The question is, if China wants to cancel and US ending stocks are so tight then why not let them cancel?
One reason may be related to issues we have had with China regarding another row crop - corn. Earlier this year China started to reject cargoes of US corn based on finding trace amounts of a non-approved GMO variety. This particular GMO has been approved by all other major exporters in the world and China did not readily offer a reason for why they did not approve it. So, through the eyes of US commercial grain dealers this looked like another way for China to get out of taking corn cargoes that they had purchased at higher prices. So, it is conceivable that commercial grain dealers are now using this soybean situation to get some sort of payback, or at the very least to send the message - Hey China, you have to play by the rules as well.
The more likely and maybe more important reason may be that commercial grain dealers are concerned that if they do let China cancel they may not be able to sell those soybeans at the same or better prices. There seems to be a strong understanding in the commercial world that the global soybean stocks could be at a record high this year. So commercials may not be willing to allow China to cancel soybean cargoes because they are afraid of lower prices.
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
Furthermore, the market has a perception that the US is running out of soybeans. In fact, looking at some early trade guesses for the upcoming March 31st USDA Quarterly Grain Stocks and Planted Acreage report it shows that many analysts are looking for stocks to be 20-30 million bushels lower than this time last year. But, in conversations with many various industry contacts we are hearing a much different story. This time last year it was difficult to find large quantities of soybeans that were unallocated.
This year feels completely different. Soybeans seem to be around and available. Another interesting thing is that we hear that soybean stocks in the Pacific Northwest are good, yet the vast majority of exports inspected for shipment are coming from the gulf or the Eastern Seaboard. Is it possible that we are taking South American soybeans, maybe even some of the same shipments China canceled, and shipping them out to China? Or was soybean production better then what the USDA reported last year? Would this mean that this very tight US balance sheet that the market is perceiving is actually not so?
The March 31st stocks report will shed some light on this situation. It could be the case that the USDA underestimated the soybean crop last year. And, Actually this time I wouldn't go off on a rant on how the USDA needs to get their act together because they actually do have an excuse this time - due to government shut downs they were down during a time when then needed to be in the fields gathering yield data. So if this were the case it would be reflected on this stocks report. The other possibility, soybean imports, may not show up on this stocks report on a large scale. This stocks report is as of March 1st and the majority of imports would have likely occurred later. So, this may not show up until the next stocks report.
Either way this March 31st USDA Stocks and Acreage report is very important and will set the tone in grains for months to come. You can sign up for our morning newsletter if you would like to see Zaner Ag Hedge's report estimates. We are one of the few companies that is polled by the big media outlets, so you will see us there as well.
Sign up for our newly renovated Morning Ag Hedge newsletter! If you have signed up previously there is no need to sign up again, you should be receiving it. Sign up here: 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.
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 email@example.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.