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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.

Early Thoughts on the Upcoming USDA Report

Aug 08, 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.        

The trade guesses are out for the August USDA report.  The average guesses have corn yield and production increasing and soybean yield and production decreasing.  So, at face value the trade is looking for a bearish corn report and a slightly bullish soybean report.  However, I would not be surprised if the USDA takes a more conservative approach this time.  

The first observation to be made here is the that the yield and production numbers from last year stick out like a sore thumb.  This time last year we all knew that it was going to be a tough year for yields and most likely a very good year for prices.  Looking at where we were last year certainly puts this years situation in perspective.  

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

The second thing we are looking at is corn yield.  The trade believes that yield numbers should be going higher at this point.  Now, crop conditions are good but progress is a week to ten days behind.  For this reason I think it may be a little early for the USDA to make any drastic changes.  Also, crop conditions in a big part of the Western corn belt continue to be under pressure, particularly in a large part of Iowa. A lower yield number in Iowa could have more of an impact on the national yield then say a smaller producing state like North Carolina.  This could mean that there is a bigger impact on yield then what the national average conditions would suggest.  We think that the corn yield number could actually go down in the end, especially if there were to be any frost damage.  Currently our corn yield number is 155.25, 1.25 bu an acre lower then the July USDA est.  This could change significantly if there were any frost damage.  

Finally, the trade is expecting a decrease in soybean yield.  Here too it may bee too early for the USDA to make any drastic changes.  Again, crop conditions are good but progress is behind.  It would make sense for the USDA to wait for the September report to see how soybeans get through pod set.  Again, this could be a situation where the national average crop conditions may be a little misleading.  The wild card for the soybean market could be an adjustment to planted acreage.  Our current yield estimate for soybeans is 44 bu an acre, .5 below the USDA.  

This USDA report may come out with few changes from last month's report.  If this is the case it would mean that corn production numbers could come in below estimates while soybean numbers come in slightly higher.  Grains as a whole have been under quite a bit of pressure lately, but price action in corn and wheat has been a little better to start the week.  From a technical perspective grains markets are very oversold.  Corn and wheat may be at a point where they can bounce or trade sideways to correct this oversold condition.  Keep an eye on corn and wheat, and stay tuned for weather as at some point markets could get concerned about crops being behind and the possibility of frost damage.  

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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 while we have corn near $5.00 and soybeans near $12.00. 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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