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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.

Have the Grains Traded this Weather Yet?

Apr 18, 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.   

Tremendous amounts of snow and rain have fallen over much of the growing area in the last week.  On one hand this goes a long way to break a drought, but the timing of it has planting progress well behind the 5 year average.  It seems that so far the market has not recognised the cold, wet weather as a threat.  This could all change dramatically in the days to come.

This cold, wet spring has been a sharp contrast to last year.  This time a year ago we were unseasonably warm and rolling out planting at record pace.  We also thought we were going to have record yield and record production due to the early planting, but we all know how that ended up.  This year it's cold, wet, and sloppy and the concern is that we will not get all the corn planted in time.  I think there are two things we can take away from this.  One, we will likely see some corn acres switched over to soybeans.  Two, whatever does get planted will have a good shot at a very good year.  Not only has subsoil moisture gone from none to a ton, but when you have moisture in a weather system like this it evaporates and feeds the cycle.  Hopefully this moisture in April will eventually regenerate as moisture in July.

So far the grain markets have been mostly oblivious to this weather.  Corn, wheat and soybeans have spent most of the week reacting to big moves in the outside markets.  By no means am I saying this should be ignored.  If in fact the US$ is poised to make an upside breakout and the bullish commodities cycle is turning bearish then it will have a profound impact on grains markets as a whole.  However, the more immediate concern probably should be if we can get a crop in the ground.  I do understand that for most areas there is still a good amount of time, but even now some northern areas may be running out of time and yield potential could be taking a hit everywhere.

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

I think it is reasonable to estimate that at this point 500,000 to 1,000,000 acres of corn may not get planted and this could go up dramatically if weather does not get warmer and dryer soon.  The old adage rain makes grain certainly holds true when its in the ground but until then markets should be concerned, and be adding incentive to get planting done.  With corn possibly loosing acres it would seem likely that soybean acres would benefit.  At this point I would think 250,000 - 750,000 acres could go from corn to beans.  This is big increase in bean acreage and could also be a big boost in production.  This is not a function of prices as South America has a massive supply of soybeans and US beans will face stiff competition going forward, but this is simply a function of opportunity.  So, while it may not be the most ideal situation to plant more soybeans it may be the less risky option.  Therefore if corn wants to keep acreage it should be adding risk incentive.

Today December corn was down 6 cents and November Soybeans were up 5 1/2.  This is the opposite of what we would expect if there is in fact a shift in acreage in the works.  This very well could be a situation where the market will need to play catch up sometime soon.  If so $12.25 could be a good place to sell new crop soybeans, and $5.40 might be a good place to lift unneeded hedges in corn.  Overall this moisture is a huge positive for the growing season, so what does get planted could have great yield potential but for now it should be seen as a bullish force in corn and a bearish one in soybeans.  I think beans should be sold sooner then later, and corn should be sold after 50% is in.

One final thought...  This kinda reminds me of late May of last year in the sense that I was having conversation after conversation about how dry it is and yet grain markets were still down.  This is when we were buying September corn 620 calls for 7 cents to protect our short Dec 660 calls.  A few weeks later the market was on its way to record highs in a hurry.  Sometimes it takes the rest of the market a little while to figure out weather issues.  This is where guys in the field have an edge.  I think this could be one of those moments.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

May Corn Daily chart:

May Soybeans Daily chart:

May 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 $7.00 and soybeans near $14.00. 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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