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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.

Grains Back Off, Corn Closes Below Support

Oct 25, 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.   

Grains were on the defensive today with front month corn, wheat and soybeans all closing lower on the day.  Export sales this morning were solid for wheat but disappointing for corn and soybeans.  The biggest take away from the export sales report is the cancellations from China and unknown destinations which are also likely China.  Corn had cancellations of 120,300 mt from China, and soybeans had 303,400 mt cancellations from unknown.  This indicates that the recent and small rally in grains was enough to price out some export demand again.

The soybean chart still looks ok for a bounce as soybeans weigh the bullish short term situation with low US stocks and nowhere else to go vs. the bearish long term situation with South America looking like they could have a monster of a crop.  Soybeans could stay very volatile as we get deeper into the South America weather market.  Brazil will be going through pod setting in January and February.  If all goes well, this could put in highs for soybeans at least until we get into the US growing season.  Also, I have to believe that in the near term China is looking to buy as little amount of US soybeans as possible as long as South America looks good because they know that if they are patient they may have the chance to buy soybeans at a $2-$3 discount in a few months.

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The corn chart looks like we could be starting to roll over again.  We do have support just below the corn market at $7.32, but after that we have a clear shot down to September lows of $7.05.  Today we closed below key mowing average support and the pivotal $7.50 cent mark.  Fundamentally, export demand is almost nonexistent right now and trade expectations are for a bearish increase in yield and ending stocks on the November USDA report.  Lat Friday's Cattle on Feed report showed September placements at 81% of last year, this is the lowest September placement number since 1996 and the lowest number of cattle on feed since 1996.  Corn had enjoyed support from firming soybean prices but reasserted its bearish enthusiasm today.  Corn still has a gap in the chart between $6.85 and $6.75 that was left over the July 4th holiday and this could be a likely downside target on of before the November report.

Overall grains could stay volatile through next years growing season as we watch South American weather closely and we watch our weather looking for replacement of subsoil moisture.  But for now it seems that the bulk of the bullish news might be behind us.  Demand for soybeans is ok at these prices but this may be short lived as we move through the South American growing season.  Demand for corn is noticeably struggling with consistently poor export sales figures and the lowest September cattle placements since 1996.  For my money, I have to be concerned about the downside potential at this point and I need to be looking out for the next 2-3 years.  the bottom line is that we could be on or two solid growing seasons away from swinging prices to the other extreme.

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

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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