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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.

Where are All the Soybean Cancelations?

Jan 14, 2014

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.        

For the week ended January 2nd the USDA reported that of the 1.498 billion bushels of soybean export sales 577 million had yet to be delivered.  Many analysts believe that at least some of the remaining bushels could get canceled or switched to South American origin.  But, so far we have not seen many cancellations and export sales have remained fairly strong.  Is China and other global soybean buyers going to cancel or switch some of these purchases?  And, if they are when?  

Many analysts including myself feel that China and other global soybean buyers have overbooked their soybean needs in order to hedge the South American crop in case there were any major production issues.  The thought was that cancellations may occur once it was all but certain that the crop in South America was all but made.  With much of Brazil looking very good and getting toward the finish line right about now is when many analysts were expecting to see the cancellations or origin switches rolling in. But, so far cancellations or switches have been minimal.  Last year may offer some insight to this.  

Last year South America had major logistical and political issues that produced lengthy delays in getting soybeans to the ports and shipped off to their destinations.  A rainy, muddy end to the growing season certainly had a hand in that.  Last year the pictures of miles of trucks waiting in line to off load soybeans was especially dirty (we see these pictures every year just less muddy).  Now, South America always has logistical issues but last year was especially bad and global soybean buyers certainly remember this.  

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

The delays in getting product to port in South America last year translated into an extension of the US export marketing season and this caused prices to rally.  This was of benefit to US and SA farmers alike but was a thorn in the side of global end users.  This year China and the gang think they have out smarted the market.  They have over booked their needs so that they will not get caught empty handed if Brazilian port workers go on strike or Argentinean truck drivers refuse to move their trucks until the get a raise (as they do every year).  This time the plan might be to wait until South America has soybeans on container ships and in the bins at the ports to cancel sales.  And, when they cancel sales soybean prices could fall and this would be very convenient for China and company because they could buy soybeans back at cheaper prices.  

Now, the scenario above is somewhat based on speculation but I could certainly see this scenario playing out.  Global soybean buyers are smart and may have learned for years past.  It could be the case that all of the outstanding US export sales end up getting shipped.  It could happen that the strong export market runs the US right out of a soybean carry over and sends prices back to record highs and beyond.  Or maybe global soybean buyers are using this as an opportunity to play games with the markets...  

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:

March 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

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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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