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The Ted Spread

RSS By: Ted Seifried, AgWeb.com

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.

At What Point do We Start to Worry About an Early Frost?

Jul 30, 2013

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.        

It has been a strange growing season indeed.  We saw a cold, wet spring turn into a hot and dry June and early July.  Then the second half of July saw a return to a wetter pattern along with much cooler temps that flirted with record lows and even produced some frost in the northern extremes of the growing area.  As we turn the page on July we wonder what then next few months will bring.  

A cold an wet spring did two things.  One, it recharged sub soil moisture levels in most areas after a sever drought last year. Two, it caused massive planting delays.  So, it was a bit of a bitter sweet spring.  After a near record slow planting pace the concern was that key moisture sensitive stages of corn and soybeans would be pushed back into the thick of the hottest temps of the year.  So far, that has certainly not been the case but at what point do we start to get worried about below normal temps?  

CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie

At the moment below normal temps are just what the doctor ordered as some areas are a little too dry.  This is significantly helping in corn pollination and to ease the mounting stress for those of us who have missed on the recent rains.  But with planting delays putting crops behind the normal pace shouldn't we be concerned that an early frost might wipe out a large portion of production?  It is conceivable that well over a billion bushels of corn could be lost and 300-400 million bushels of soybeans depending on how early and widespread a frost would be.  

So far grain markets have not reacted to below normal temperatures in July as a threat.  It is probably too early for markets to get too excited about as for the moment the cooler temps are helping the crop.  But with markets being so sensitive to weather it would seem to make sense that at some point concern should build.  Now, it is important to note that at the moment that the forecasts suggest warmer temps in August.  And, many weather forecasters suggest that the chance of an early frost is low (10% or less).  But still, the impact of an early frost would be so huge that cooler temps might be a concern especially with late planting extending the growing season in many areas.  

At this point we are not looking for a big rally in corn and soybeans on the basis of cool temps.  We are however wondering it this could start to support markets and keep them from another sharp leg lower.  From a technical perspective corn and soybeans might be ripe for a bounce anyway.  Regardless, it seems that the weather market is far from over and it will be important to closely follow weather forecasts for months to come.  

Sign up for our Morning Ag Comments: 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.   

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 while we have corn near $5.50 and soybeans near $13.00. 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 tseifried@zaner.com

Please check out my Blog at: http://tedseifriedfutures.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.

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