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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.

Price Rationing Soybeans, How long will it Last?

Feb 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.        

Soybean prices have risen dramatically in the past week as concerns grow about a tight US balance sheet.  Strong export sales and strong crush margins are threatening to wipe out US ending stocks.  The soybean market has responded with sharply higher prices to try to price ration or slow down demand.  It seems that soybeans are on a mission to cut out export sales and force cancellations.  So, as we prepare for the February USDA WASDE report the question is how long will this price rationing last?  

Currently the USDA is projecting a 150 million bushel carry over in soybeans for the 2013/2014 marketing year.  This compares to a 141 million bushel carry over in the drought effected 2012/2013 marketing year that saw prices move to record highs.  Now, it is important to note that when soybeans hit record highs in the summer/fall of 2012 the market thought we would certainly run out of soybeans. So, there are some similarities in the sense that the market is reacting to a perceived tight supply situation and trying to curb demand with higher prices.  However, there is one major difference - South America.  

When soybeans hit record high prices in the summer/fall of 2012 the world soybean balance sheet was tight.  South America had just come off a drought year and we were in the thick of our own with months to go before South America started planting their next crop.  The market had to move to record high prices to shut down as much demand as possible because there simply was not enough soybeans in the world to fill demand needs.  This year is different, as I write this the world is on the verge of gaining access to what looks to be a record soybean crop in South America, particularly in Brazil.  This will be a very limiting factor for soybeans going forward.  

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

Once South America is able to get fully up and running on their soybean exports they can fill the needs of global end users for months and months to come.  So, it is likely the export season for US soybeans is about to come to an end.  And, it is also likely that when South America gets into full swing that many of the remaining unshipped US sales could be canceled.  It may be the case that China and the gang bought more soybeans then they need in the immediate future just in case the Brazilian harvest saw major delays like in years past.  So far we have not seen any threatening weather and logistics might be in better shape then in previous years.  So, once countries like China start receiving South American soybeans they may cancel the balance of US sales in favor of cheaper South American beans.  This could be weeks or maybe just days away.  

Not only will countries like China be interested in buying cheaper South American soybeans, but US end users might as well.  If soybean buyers, especially on the Eastern Seaboard, could buy South American soybeans at a $.60-1.00 discount delivered then why not?  So as tight as the US balance sheet gets for a short period of time it may not matter long term because soon we may be able to buy as many soybeans as we could want.  

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.     

March Corn Daily chart:

March Soybeans Daily chart:

March 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

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

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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