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.
Is Corn Threatening to Rally?
Jun 19, 2014
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Just as many analysts jump on the $3.50 bandwagon corn has its biggest 2-day rally since the first week of May. In the last few trading seasons corn has managed to hold key support and now close over resistance. Is this the beginning of a bigger bounce in corn?
In many years corn has put in a high in June or July. This June, so far, has been dominated by pressure in the corn market with corn contracts making new recent lows earlier this week. Weather has been near ideal for the start of the growing season and crop conditions are near record highs. This has fueled thoughts that corn yields this year may not only be a record but maybe a record by a long shot. However, it is very early in the growing season to be making such assumptions. The problem is weather and crop conditions are about as good as it gets, so either weather and conditions remain the same or they get worse.
As I wrote in an article last Thursday, there have been 5 years in the last 20 years where crop conditions have been at least 72% good to excellent at this time of year. Only one of those years ended up setting a new record yield. My point then, as it is now, is that although we are on track to hit record yields a very good looking crop at this point doesn't always translate into a record breaker. It is very possible, and maybe likely that something in a weather forecast going forward calls the idea of record yields into question.
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This year it is record yield or bust (for the USDA balance sheet at least). The USDA is looking for a record yield and anything short of a record changes the balance sheet dramatically. With fewer planted acres in corn this year (down almost 6 Million acres from the 2012 high, and maybe more) it becomes vital for the acres that are planted to do well and for the national average yield to be high. If yields were to slip even just a few acres a bushel the USDA balance sheet starts to get tight under their current demand/usage estimates. If we ended up with the same yield as last year ending stocks would slip to about 1.1 billion bushels. Shave another bushel or two off and were are well below a billion bushels. This sort of scenario could cause a need for price rationing (higher prices) to curb demand.
So, corn conditions and weather so far have been very good, but the crop is not made yet. The corn market has good reason to be very sensitive to any hint of adverse weather this year. With weather being nearly ideal so far it wouldn't take much to spook the market. At this point we may have taken too much weather premium out of the corn market and corn could be poised for a bounce, even without a major weather issue. If there were a major weather issue however, for example it got hot and dry in July, corn could really find some strength.
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July Corn Daily chart:
July Soybeans Daily chart:
July 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.