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.
Corn and Soybeans Have Fundamental Differences
Oct 02, 2012
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.
Last Friday the USDA sent a shock through the grains markets with their stocks report. It was seen as very bullish for corn and that became the driver to end the week. Soybeans followed corn after it locked limit up as traders felt the need to buy something but the start of this week has been a very different story with soybeans over 70 cents lower in two days.
Overall, I saw the need for a technical bounce in grains. We had momentum studies showing a extreme oversold condition in corn and soybeans (not so in wheat), and the sell off highs had extended to the lower limits of Bollinger bands. A bounce back to resistance was due. However, corn and soybeans sure have handled this differently. It seems unlikely that row crops will spend an extended period of time moving in opposite directions, but it is tough to tell if the weakness in soybeans or the relative strength in corn become the driver in the short term. Soybeans have gotten oversold again in a hurry and could be due for a bounce which could allow corn to take a better shot at a rally. As seen on the Daily chart below, corn is holding below the 20-day moving average but if it can break through it could test resistance at $7.89 1/2 or second resistance at $8.06 1/2.
I am currently using a November option strategy to protect short hedges or as a spec play. Call or email for details.
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
Longer term I am skeptical of this rally in corn. I do not believe that because 2011-2012 ending stocks were lower by 200 million bushels that the USDA is just going to discount their current 2012-2013 ending stocks estimate by the same amount (which is apparently what the trade believes). I think better then expected harvest yields and continued dismal exports can offset much or all of that. For now we still have big downside targets in both corn and soybeans in the form of chart gaps that occurred over the 4th of July holiday. For December corn the gap is between $6.85 and $6.76, for November soybeans the gap is $14.93 to $14.78. Soybeans may get there very soon if they continue the way the have the last two days, and corn could catch up in a hurry if next weeks USDA report is a bearish surprise.
When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie
With high volatility in a market, option strategies may be a good tool for hedgers and specs alike.
December Corn Daily chart:
November Soybeans 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 new crop corn above $7.00 and new crop soybeans above $15.00. 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.
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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=Seifried
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