~~TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.
Right now corn seems stuck in a strong down trend. The frost damage fueled attempt at a bounce from earlier this week has been erased and corn is once again flirting with contract lows. Enormous yield reports coming from Central Illinois and yet another private analyst's super sized yield estimate has moved into the focus for now. Going forward the emphasis on corn has to be adding pennies to bushels to help with the bottom line. While short positions have worked well to this point could we getting close to a time where it may be beneficial to be looking for a strategy to capitalize on a bounce?
Earlier this week a hard frost damaged many crops in the northern growing areas. Estimates suggest that as much as ten million acres were effected. At this point the true amount of damage is a little unclear as we have heard mixed reports. Some will say that the damage was fairly minor and that the freeze may have only taken 5% of the remaining yield potential while others report near total loss in some areas. For the moment the market is looking at this as having little impact on the total national production figure. Combines will give us a much better picture but, we would not be surprised if the market is underestimating the impact on production.
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In the mean time the bear camp and the market as a whole has taken hold of very big yield reports coming out of some early harvest efforts. There have been reports coming out of Southern and Central growing areas that have been very large and well above previous record for the area. To an extent the market should be expecting this as most of the huge yield reports are coming from areas that we knew were the best looking crops. It will be interesting to see what happens as the harvest moves further North, especially into areas effected by early frost. We would expect yield reports to less and less fantastic in the next few weeks. We may even get to the point where we can legitimately question the huge national average yield estimates that are flying around the market right now. There is also a question of planted acreage after a wet spring. Some analysts are looking for a 500-800k reduction in acreage and this could further cut into the production number. If this were to be the case, could we expect a mid-harvest rally off of lows?
If we were to get a mid-harvest rally off of lows it may be an opportunity for producers not only to sell cash corn higher but maybe to also add to the bottom line of sold bushels as well. It is always a very tricky proposition to try to pick a top or a bottom in any market, however, and you would have to play your cards just right. For this reason a more limited risk option strategy may be a useful tool. If it is possible to spend 8-10 cents on a long options or long vertical spread trade that has a potential value of 60 cents this may be an interesting thought. If you can define your risk to no more then 8-10 cents per 5,000 bushel and have a realistic 25-50 objective it may be a reasonable risk/reward proposition. Keep in mind however, this is not a true hedge for producers. It will not help protect the downside. But, these are interesting times for grain marketing and if you can live with the risk it may be a way to add pennies (hopefully dimes) to corn bushels.
We currently have a strategy that we are looking at for producers who are looking for ways to do something like this. Right now we think it is too early for something of this nature as we still have a big harvest in front of us. However we do think this could be an opportunity at some point in the near future and we do have a specific set up we are looking for. Give us a call if you would like to hear more about it.
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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:
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. 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.