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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.

Grain Rallies Have a Hard Time Holding Water

Oct 09, 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.   

For the second consecutive day grains tried to rally early only to find selling pressure into the close.  The price action for corn and soybeans in particular seems weak as markets gear up for Thursday's USDA report.  Even with a slew of bullish news coming from China (yes, I said the magic word - China), grains could not hold early gains.  In an effort to coordinate global easing efforts China announced that they were going to add what would equate to over 40 billion dollars to their economy which means they can buy lots of beans.  They also lowered import tariffs for grains which make them cheaper to buy.  And finally, there were of course rumors that China was looking to buy US beans.  Despite the ever bullish China presence, grains were sagging by the noon hour as focus shifted back toward the report.

Average trade guesses for this report are suggesting a bearish report for soybeans and a bit bullish for corn and wheat.  However, the range of guesses for corn ending stocks is exceptionably wide, almost 400 million bushels from the high to low guess, meaning that the trade really does not know what to expect.  Everyone is trying to balance the lower then expected September 1st grain stocks report with some higher then expected harvest yields.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

I sit on the side of the fence that is looking for the USDA to increase ending stocks for corn.  However, I am not sure if it comes in this report or the next.  Given how aggressive the USDA has been in making changes in the past few months the trend would suggest that they want to make the changes on this report.

The way I am looking at it is if you subtract the 200 million bushels in ending stocks that we were short on the Sep 1st stocks you would be looking at a 533 million bushel carry over for 2012-2013.  However, when you add in a higher yield number that should offset that and maybe even then some.  If I use Informa's current yield estimate of 127 it would add another 477 million bushels to production.  Interestingly enough...  533 + 477 equals a cool 1 billion bushel carry over.  Now, I certainly think that the higher then expected drawdown we saw on the Sep 1st stocks report suggests a higher demand number then what the USDA is currently using so that will cut into the carry over again, but I am looking for the USDA to settle at around a 820-840 million bushel carry over.

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

So, my guess is currently above the highest posted trade guess at 815 million.  As mentioned earlier, I am not sure how many of these changes the USDA makes on this report, but these are the numbers I am expecting to see by the November report.

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.

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=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

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