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.
Are Soybeans Headed for New Highs?
Mar 18, 2014
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After almost a $1.00 pull back, May Soybeans have now bounced back to within 42 cents of the highs. Fund and technical buying have helped the soybeans to recover, but is this the start of a new leg higher in this bull move? Or is this a continuation of a topping formation?
Since the end of January old crop soybeans have rallied over $2.00 from the lows. This strength has come from fund buying and concerns about tight stocks. Soybean exports are on a record pace and the fear is that the US could be left with a historically tight ending stocks figure if these strong exports continue. On top of this funds, which are largely technically driven, have jumped into the market and helped add fuel to the rally. However, last week the USDA reported only a 5 million bushel reduction in the projected carry over and soybeans fell sharply from the highs.
The fundamental picture for soybeans is a highly contested matter at the moment. On one side you have the bull camp who feel that even with cancellations from China export demand needs to be increased dramatically which would leave ending stocks at historically low levels and below what the USDA considers "pipeline supplies". On the other side you have the bear camp that will argue that a projected record world carry over should keep global soybean prices in check and that the US could even import a large amount of soybeans if need be.
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This debate continues to rage on, but until last week the bull camp was firmly in the drivers seat. Now, things are a bit more two sided. With South America moving along with harvest and shipping out soybeans the question is will we now see more Chinese cancellations or imports of South American soybeans? We heard early last week that China had canceled 30-40 cargoes of South American soybeans and that at least some of them were on there way to the US. Without any import reporting system in place it is hard to tell to what extent we are actually seeing South American imports, but the stories are certainly out there.
From a technical perspective soybeans, for the time being, have a V top formation. This means that we went from a bull run to a sell off in a matter of 2 trading days. This sort of sharp reversal is rarely a long term top or bottom in the grains. So, when soybeans could not extent the break lower the next logical technical move would be to go an re-test the previous highs. It seems May soybeans are in the process of doing just that.
The question really is - can soybeans break through to new highs and extend the rally, or is this just part of a larger, longer term topping formation. Certainly the extent of fund buying will have a hand in determining this. But funds are not usually the ones to break new highs. This usually comes from bullish fundamental news. Many funds will only buy based on technical indicators, but will stop short of key levels or resistance and leave it to the market to determine if new highs are justified or not. It will be very interesting to see if soybeans can do it or not considering that for the moment fundamentals may not be as bullish as they were a few weeks ago.
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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.