Sep 22, 2014
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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.

Is the US Importing South American Soybeans?

Mar 06, 2014
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.   
 
It seems likely that the USDA will have to increase export demand for soybeans on Monday's WASDE report.  To keep ending stocks near pipeline supplies they will also likely increase US imports of soybeans as well.  The question is where do they come up with this number as there is no reported import data.
 
Record US export sales are threatening to run the US out of soybeans this year and the market has reacted with higher prices in an attempt to price ration demand.  However, it is likely that the USDA will still show a record world carry over number in soybeans despite the possibility of a slight reduction in South American production.  This would suggest that US imports of South American soybeans on a bigger scale then seen in the past are possible or even likely.  And, the USDA has acknowledged this by increasing imports on the last two reports.  But, where are they getting this data?
 
Currently we talk about US exports twice a week with Monday's export inspections report and Thursday's export sales reports.  But, there is not currently a reporting system for US imports, at least not one that is made public.  In years past this may not have been a big deal as the US has not been a major importer.  However, things may be different this year and could be in years to come.  It may be time to set up a reporting system for imports similar to what we have in place for exports.
 
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
 
To some extent it is an unbalanced view of the market, especially this year when big South American imports are a real possibility.  We see big export numbers and it seems like the US will run out of soybeans.  But with a potentially record world carry over the global situation does not seem nearly as dire as the domestic situation.  And, if it is true that there will be so many soybeans in the world this year it seems likely that the US will import more then in years past, especially if domestic prices stay elevated.  We have even heard talk from industry men that there already have been more South American soybeans imported to the US then the current USDA projection.  So again, how does the USDA know where we actually stand?  Is there a system in place for accounting for imports or is it simply a best guess scenario?
 
The lack of a public reporting system for imports may actually be a boon for producers too.  As we start putting together our planting intentions this year it is tempting to make a switch to soybeans based on the recent strength.  However, if there are or will be imports on a larger scale then the carry over situation may not be nearly as tight as the market is currently perceiving and could lead to a sharp drop in prices when this becomes known to the market.
 
So, if we are actually going to have bigger South American imports to the US this year when will the market see this?  That is a good question because we are kind of left in the dark when it comes to imports, but we will see what the USDA has to say on the matter on Monday's WASDE report.  However, we may not know the full extent until later.  The March 31st Quarterly Grain stocks report could show higher stocks then expected (similar to corn last year) and this would likely be a reflection of imports.  But we may not actually get the full picture until the June 30th grain stocks report.  If this is the case it could potentially set the market up for a big surprise in the middle of the growing season.
 
It will certainly be interesting to see how the USDA handles the balance sheet on Monday, and it sets us up for some potentially interesting reports for months to come.  At this point it may be easier and more beneficial to the market to set up an import reporting system.  At least that way we would get to see both sides of the story.
 
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Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.   
 
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. 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

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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