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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.

The USDA Gives Corn New Life, Soybeans Try to Follow

Oct 11, 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.   

Don't look now, but corn and soybeans were able to sustain a rally today.  Damn the torpedoes the USDA to the rescue.  However, somehow corn never did reach limit up even though it spent the last hour and a half no further then 6 cents away from limit and soybeans closed almost 20 cents off the highs.  Regardless, this report could have changed the tone in the grains markets for now. 

Today's report gave new wind to the bull sails as we saw the lowest carry over number for corn since this drought of a growing season.  The bull case has to now be that we were able to make record highs 75 cents above where we are now on a USDA balance sheet that was no where near as tight as this one.  On top of that, throw in a larger then expected quarterly draw down in the September 1st stocks report and we can argue that the USDA is still significantly underestimating demand.  For soybeans the bull case is a little tougher because it might be tough to justify new highs on higher US and world ending stocks.  But, here too we can certainly argue that the USDA is still underestimating demand despite the increases (particularly in exports) they made this month.  The best bull case for soybeans might be a "me too" argument, and the fact that supplies will be tight and in need of ration until we know for sure that South America has a crop.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

This report could find at least few days of follow through to the upside even though corn could not muster limit up and beans closed off the highs.  The tightest corn carry over so far should be enough to test $8.00 right?  I think so, but upside might still be limited for the time being.  Corn could certainly find more producer selling on rallies as the harvest is still in progress and prices are good.  And, there is a side of the trade that thinks that the USDA is now 3-6 bushels short on yield.  Informa in particular is using a 127 yield for corn while the USDA is at 122.  By the way, good job informa for pegging the USDA soybean yield at 37.8, dead on.  There is a good chance that when we see the final USDA harvest numbers in November that the corn yield ends up quite a bit higher.  If that November report is as bearish as I think it could be, and El Nino holds up in SA our post-harvest bounce could be very disappointing.

Maybe it's a good thing corn never made limit up because last time there was very little follow through to the upside.  For now, it certainly looks like we could see some higher prices in the days to come.  I am not sure that this balance sheet is enough to make new highs however.  New highs might have to wait until the end of the next growing season when the bins are running dry.  New highs could also be dependant upon a bad South American crop and weather concerns for our growing season.  That is too many what ifs for me.  I am looking at this USDA bounce as a good opportunity to get some good pricing in the next few weeks.

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

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

December Corn Daily chart:

November Soybeans 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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