Sep 23, 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.

The USDA's Stand on Soybean Exports

Dec 12, 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.        

On the December USDA WASDE report the USDA had a tough call to make regarding the soybean export situation.  The way they chose to handle it was interesting and could offer insight for reports to come.  

For weeks now we have been talking about how the soybean export situation is making it difficult to determine short and long term direction of the market.  On one hand export sales are 330 million bushels higher then this time last year and at a record pace.  As of next week soybean export sales will likely have already hit the USDA projection for the current marketing year even though we are only 4 months in.  On the other hand the latest USDA data shows that export shipments are only 53 million bushels ahead of last year compared to the 330 million bushel increase in sales.  The concern here is that some of the 725 million bushels in sales that have not shipped yet may get canceled if South America continues to have favorable conditions.  

Leading up to the December WASDE report there was a lot of talk about how the USDA would handle this situation.  Some suggested they should raise exports aggressively while others suggested they should leave exports unchanged until shipments begin to catch up with sales.  The way they did handle it was interesting and might give us a clue on how they will act on coming reports.  

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On the December WASDE report the USDA increased exports by a modest 25 million bushels.  This was probably enough of an increase to buy more time to see how the sales/shipments scenario plays out.  At the same time the USDA increased US imports by 10 million bushels.  I'm not sure that anyone saw that coming.  Basically what the USDA is saying is that with the highest projected world stocks number in over 3 years the US may start importing soybeans from South America early next spring to offset the higher sales demand we are seeing now.  

What this means is that on future reports the USDA could continue to increase exports but they may increase imports as well.  I suppose it is also possible that the USDA could increase imports and leave exports unchanged at some point.  Either way by raising imports, even by only 10 million bushels, the USDA has taken some of the steam out of the bulls sails.  The fear of running out of soybeans this year is soothed by the prospect of large world stocks and US imports.  It seems pretty clear now that the USDA is not going to dramatically tighten the soybean balance sheet unless there are major issues with South American production.

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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.     

March Corn Daily chart:

January 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

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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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