The Ted Spread
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.
Sep 18, 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.
Grains have been under pressure to start the week after a flurry of news last week. QE3 it seems is old news this week and the bullish effect on commodities markets has been short lived for now. Good rains and a good weather outlook for South America has taken center stage this week. El Nino is expected by many to be in full effect this year which could translate into a bumper crop on record yields. This triggered China's futures to be sharply lower coming into the week and Chicago followed. Add to that some harvest pressure and fund liquidation and we find grains now well off their highs.
Ultimately I have to look at last weeks USDA report as being quite bearish, especially for corn, because lower yields did not translate to lower ending stocks. The corn has to be of particular concern because with a 733 million bushel carryover the situation does not seem as dire as was once thought. Yes, this is a tight balance sheet, but no where near the numbers that were being thrown around in the midst of the scorching summer heat. In fact, back in March - May we were talking about a similarly tight balance sheet for old crop corn and trading mid $6. The time of year could mean added pressure as spreads are not offering much incentive to store grain this year.
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Soybeans also have a tight balance sheet, but not record tight. Yet, we have traded record high prices. The key here is going to be the South America crop. If they fair better then last year on what is predicted to be record acreage then we could be swimming in $14.00 SA soybeans by March.
With record high prices and tight but not record tight balance sheets it seems that there would need to be some outside factor contributing to high prices - Like in 2008 when funds were buying anything tangible because of strong inflation and a weak dollar. Enter QE3... Further easing to the tune of $40 billion a month certainly puts downward pressure on the US Dollar and creates inflationary pressures. However, the US and global economies is certainly not booming like 5 years ago. So QE3 could have a diminished effect, care of the law of diminishing returns.
It will take time to know if QE3 is successful or not, but for now the effect on grains was minimal. Harvest pressures, South American weather and a more comfortable balance sheet may take center stage going forward.
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 $16.00. 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.
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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
When Does Weather Matter: http://www.zaner.com/offers/?page=6&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