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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.

Was That the High in July Soybeans?

May 23, 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.   

July soybeans have rallied over $2 from the April lows and have been lending strength to the entire grain complex.  Today old crop soybeans broke through the $15.00 mark, moved to within 18 cents of limit up, set a new high for the year and reached levels that had not been seen since things fell apart last September.  And then the bottom fell out.  After soaring to new yearly highs by mid-day July beans fell apart going into the close.  The last trade was up only a 1/2 cent after being up 52 1/2 cents, and the settlement price of 1499 1/2 was 47 1/4 off the high.  What happened?  

Strong cash basis in the interior and sold crush margins have been fueling a strong rally in old crop soybeans.  Soybean demand has been moving at an unsustainable pace.  Export sales today were strong further adding to the concern.  Talk that a Chinese soybean crusher was caught in a cash basis contract and needed to cover futures contracts added fuel to the fire.  

In the mean time a strong US dollar and a huge South American soybean crop have been adding incentive for US imports of South American beans.  We have heard lots of talk of South American soybeans headed to US shores, and this is in part the problem as demand for soybeans has been high in the middle of the country and getting soybeans upstream has been slow.  At this point however it seems very likely that the proper motivation has occurred to get it done.  Also, talk mid-day that a port strike in Argentina had been resolved encouraged thought of more aggressive South American exports, including possibly to the US.  

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

From a technical standpoint the move today in July soybeans is not a traditional sell signal.  However, in my book whenever you close almost 50 cents off highs it is a huge red flag.  This is not a key reversal, it is not even a reversal as we still posted higher highs and higher lows.  But with the way things were falling apart at the close I have to wonder where July soybeans would have ended up if grain markets were still open until 2.  For now, it is a day that should make soybean bulls take caution.  Honestly, I think there is a very good chance that 1546 3/4 is the high.  

Overall the continued strength in old crop soybeans has been surprising to me.  With a stronger US dollar and higher prices and a huge supply of soybeans in South America it would seem that we should be seeing large imports of soybeans.  In fact, there is a good chance that we are.  Once the beans at the ports make their way upstream there will be substantial pressure on cash markets and probably futures markets as well.  

As far as new crop is concerned, November soybeans have been supported by strength in old crop but have not followed on a large scale.  With the potential of 1-1.5 million acre increase in planted acreage it is difficult to get too excited about the new crop situation unless there is a major weather issue.  Now, we still have to grow the crop (shoot, we still have to get much of it planted) and we will be very sensitive to weather this year, but if things go well there will be a lot of soybeans in the world.  

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If you are looking for ideas or want to talk strategy feel free to give me a call or shoot me an email, you will find my contact info below.

July 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 corn near $7.00 and soybeans near $14.00. 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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