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.
Has Corn Gone Too Far?
Jul 15, 2014
TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.
December corn set new contract lows today after crop conditions hit the highest level in 20 years. At 76% Good to Excellent this is the highest rated corn crop at this time of year since 1994 when corn was 86% good to excellent. 1994 set a new record yield by a long shot, but should we already expect the same this year?
Corn has been under significant pressure in the last 2 1/2 months with December corn falling over $1.30 off highs. Much of this pressure has been the product of very good weather conditions and a highly rated corn crop. Other factors include declining soybean and wheat prices as well as larger then expected old crop stocks. There as been very little news for corn to get excited about in the last two months.
At this point however, not only is corn very oversold but we may have taken too much weather premium out of the market. With the Relative Strength Index (RSI) at about 19% corn is in an extreme oversold condition. This does not necessarily mean corn will bounce, but it could be suggesting that selling pressure could ease a little in the short term at least from the technical traders. At the same time the market has taken out any weather premium and while the corn crop certainly looks good there could still be weather issues that could hurt yield potential. With less planted acreage this year corn needs to at least see record yield to maintain a comfortable balance sheet.
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The other question is when do we begin to see more value buying in corn. With futures prices near 4 year lows it would seem likely that global and domestic end-users would be looking to fill some corn needs at lower prices. The issue may be that China seems to have all the corn they need for now and the general perception is that corn is still going lower. It may take a 10 cent rally to motivate buyers after such a large change in prices. After all, why would anyone buy if there is no fear of higher prices?
When all is said and done we certainly could end up with a new record national average corn yield and it may be by a long shot. But, there is still months of weather to get through first before we should assume that. An early frost could sure change the current USDA balance sheet.
Farmer selling could be a limiting factor on a rally as many producers have not gotten enough corn sold at higher prices and are looking for that bounce to sell. And, weather forecast still look very good. But, as we approach 4 year lows I wonder if corn can find some support and build some weather premium back into the market at least until we know for sure what we have.
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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. 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.