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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.

Should We be More Worried About December 2014 Corn Prices?

Jul 16, 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.        

In recent weeks the USDA has given us bearish numbers in the form of huge planted acreage and some of the biggest ending stocks for corn that we have seen in a long time.  This has put a significant amount of pressure on the December 2013 corn contract.  The outlook for less then ideal weather in some areas during key moisture sensitive growth stages has kept December 2013 corn from a free fall, but what about December 2014?  

At this point it seems that there will be a big corn crop this year.  At this point the question is how big.  We currently believe the USDA is overstating production but also overstating demand.  In the end we feel that we may have already seen the biggest ending stocks numbers that the USDA will put out, but maybe not by a whole lot.  We do feel  that yield numbers and harvested acreage numbers need to come down but much of this will be offset by lower feed, ethanol and export numbers unless lower prices can stimulate some demand.  So all of this paints a bearish picture for the December 2013 corn contract.  But, with crop insurance levels being set at higher prices last February some of this blow will be cushioned.  Furthermore, there has been a lot of investment in storage in the last few years and producers may choose to store and hold grain until prices go back up.  

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In this scenario producers may be able to keep prices elevated for some time due to a tight cash market.  So between higher crop insurance prices and the potential for producers to hold corn out of the market December 2013 prices may not be headed as low as some people are forecasting.  The bigger problem could be the next growing season.  If prices are much lower in February crop insurance will not offer the same protection as it has in the last few years.  And, if producers are storing grain waiting for higher prices then what happens if we have another big crop next year.  December 2014 corn may be the contract that actually takes the beating.  

We should at least be looking at what we can do with next year.  I am not suggesting flat price hedging.  I would not want to forward contract or lock in prices here with a whole other growing season to go.  I do like the idea of putting some parameters around the market.  We have some option strategies we are using to get this done for corn, wheat and soybeans.  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.   

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

December Corn Daily chart:

November 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 corn near $5.50 and soybeans near $13.00. 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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