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.
Grains Eye South American Weather
Oct 29, 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.
South American weather has sort of flown under the radar of many traders amid the US harvest, but it has been and will be a big influence for the grains markets. The mid-October strength in soybeans has been largely tied to strong export sales, but another bullish feature has been dryness in Argentina. Now, as Argentina braces for what may be the most important rain event of the year grains markets have taken notice.
For the most part Brazil has enjoyed favorable weather conditions to start the growing season thus far. Argentina however is in need of rain. Central and northwestern areas from La Pampa to San Luis are in need of moisture to recharge sub soil and aid in planting and germination. There is a rain event in the forecast for the dry areas of Argentina that has been showing up since late last week. As the time frame approaches confidence has grown and rain amounts expected have grown as well. This has eased some concern that the Argentinean crop might be off to a poor start but this rain even is essential to keep fears from growing again.
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The current forecast for Argentina calls for widespread rains over most of the growing area now through Friday with amounts in the 1 to 3 inch range with up to 5 inches locally. Some models even have localized amounts of 7 inches or more. This would go a long way to easing dryness concerns if the advertised totals materialize.
The market will be watching this rain event closely. When forecasts call for so much rain it is easy for the actual event to produce less then expected. This could cause concern to grow and markets to price in weather premium. The other interesting piece of South America's forecast is Brazil. Longer term forecasts for Brazil seem to be flip flopping over expectations for week. Some forecasts have heavy rain activity while others are dry. If Brazil would miss out on rains next week concern may start to build for the southern growing areas.
As we transition form US harvest to South American growing season South American weather will be a big driver for grains markets. If dryness issues persist in Argentina or develop in Brazil grains markets may need to price in a weather premium and at some point may need to work to ration global demand. However if South American weather progresses favorably grain prices may need to push lower in order to absorb a big South American crop. So stay tuned.
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December Corn Daily chart:
January 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. 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 email@example.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.