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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.

Quiet Down Day in the Grains, More to Come?

Nov 15, 2012

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.   

Quiet trading and tight ranges today for the grains, but I think today tells us more about this market then the sleepy day would suggest.  It really was like watching corn grow today.  Low volume, slow price action and no news made it difficult to watch the screen all day.  The charts however do give us some signals today.

As far as bounces go this one has been underwhelming to say the least.  Soybeans needed a bounce to correct the extreme oversold condition that developed in the last 2 weeks.  Corn wanted a bounce off of the old September lows and the psychological support at the $7.00 mark. Wheat has a bit of a bullish story with crop conditions at or near record lows for this time of year.  But none of this has thus far amounted to much follow through to the upside.  So, grain bulls have to be disappointed to say the least.

What's more is that there seems to be some large funds out there that are looking to get away from risky commodities.  Many of these funds were aggressive buyers in the run up during this drought driven summer rally.  The positions they hold are likely getting back to breakeven or worse and they were looking for a bounce to get out.  The bounce has not been much to speak of so they may become more aggressive sellers on weakness going forward.

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From a technical perspective the chart action today produced some hints of fresh new sell signals.  Soybeans managed to close down 17 cents in Jan and below yesterdays low.  Corn closed below Tuesday's high which was had been a buy signal until it got negated by today's action.  Wheat tested and held Monday's low but produced the lowest close since July 11th.  The charts are looking very prone to further weakness at this point.

Fundamentally, there is little in the way of news to get the bull camp excited.  Exports remain poor especially for corn.  Cattle on feed numbers are the lowest in years (we will get a fresh look at this on tomorrow afternoon's Cattle on Feed report).  Ethanol plants are running a little or negative profit margins.  And, South America sure looks like it will continue to get the benefit of an El Nino weather pattern.

Now, South America did have some planting delays due to wetness so I would like to briefly touch on what that means for prices.  First off, as we all know late planting can mean a reduction in yield potential but the benefit of good subsoil moisture and a wet weather pattern can offset some of that.  Second, later planting usually means later harvesting and this could keep the US crops in the mix for exports longer then originally expected.  Finally, there could potentially be a shift in acreage toward soybeans.  This may be slightly bullish for corn but really very bearish for soybeans.  The bottom line is that SA will have record planted acreage this year, and if this El Nino weather pattern holds up they will have a monster.  The late planting certainly has an effect on crops and markets but let's face it, usually when we rally row crops on the idea of being too wet that rally is short lived and followed by a sell off.

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

All things considered, it is important for producers to take a serious look at doing something to protect prices going forward (if they have not already).  The concept of even a mediocre US growing season on top of current demand is scary.  I plugged in a 151 average yield (10 below trend line) on 97.1 million acres (Informa's forecast) and a modestly improved demand side and I came up with a 1.247 billion bushel carry over.  If that story becomes a reality then we could see prices swing back toward the lower extreme.  The fact is that we are one good growing season away from seeing a 3 in front of corn, and everybody needs to be thinking about what that means for them and what they can do about it.

 

With high volatility in a market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

January 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 while we have new crop corn above $7.00 and new crop soybeans above $15.00. 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=Seifried

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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