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.
Accounting for the USDA
Aug 12, 2014
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.
This August USDA WASDE report was a big deal for markets going forward. Certainly for the raw data that it provides, but maybe more so for the reactions it has generated. Since this report was released I have seen analysts writing that the lows may now be in while others say that this now sets the stage for new lows. For the most part the trade is now very much divided about yield prospects this year. The Pro Farmer crop tour may shed some insight here, but lets take a look at the USDA balance sheet for corn and see how both the bull case and the bear case can be made.
The USDA is pegging the national average corn yield at 167.4 for now. This was well below the range of trade guesses of 168-175. So this corn report found a bit of a bullish vs. expectations reaction. However, adding 2.1 bushel an acre to an already record national average yield expectation is a big move for the USDA. Some will argue that this is the first step the USDA is taking to raise yield expectations and there will be more to follow. Others may argue that crop conditions may start to decline from this point forward, as they seasonally do, making higher yield estimates harder to justify.
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The USDA may have left the back door open for themselves, as they like to do. Harvested acreage was unchanged at 83.8 million acres. Some will argue, myself included, that harvested acreage should be closer to 83 million acres. So, if the USDA needs to raise yield again they could go to a 168.9 national average yield with a lower harvested acreage number of 83 million acres (vs. 83.8 currently) and still come up with a production number very close to their current estimate of 14.032 billion bushels. Or, if conditions start to fall they could leave yield and harvested acreage unchanged and still keep production unchanged.
The bottom line is that this report has sparked many strong opinions about where the USDA and markets could go from here. Ultimately the numbers we are looking at are still bearish numbers but much of that has been factored in already? This report was expected to be bearish, and it was, but was it as bearish as expected? Now the market has more to talk about then just super sized yields. It will be interesting to see what the next few days bring after Dec corn fell just one tick short of putting in its second key reversal in less then two weeks. One thing is clear, the bulls and the bears now have something to talk about.
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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.