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.
Will Higher Prices Find More Corn Acres?
Apr 01, 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.
On Monday the USDA released their 2014 Prospective Plantings report and corn acres came in 1 million acres below trade expectations at 91.7 million acres. This would be down 4% from last year and would represent the lowest planted acreage number for corn since 2010. But, as prices rally in the wake of this report will corn find more acreage at higher prices?
According to the USDA the acreage numbers estimated in the Prospective Plantings report are based on surveys conducted during the first two weeks in March from a sample of around 84,000 farm operators. According to their findings corn acreage will fall in many of the key corn producing states. The largest reduction will come from North Dakota with almost a 1 million acre decline. This is likely a reflection of the weakest basis and cash prices in the country as rail transport is being consumed by oil coming from the Bakken.
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December corn prices have now rallied 30 cents since the release of the report and could be making a push to buy back some acreage. In the last 20 years the final planted acreage number has come in higher in 8 years and lower in 12. The average difference between planting intentions and planted acreage is 8.884 million acres and the average difference between intentions and final acreage is 1.127 million acres. Is it possible that corn will end up with higher planted acreage?
Higher corn prices could sway some producers to switch their intentions before planting and "buy" some corn acres. However the biggest factor may be the weather. Last year a cold and wet spring caused major planting delays and pushed some producers beyond the comfortable time frame to plant corn. So far this spring it has been more of the same with temperatures well below normal after a very cold winter. So, weather may keep producers from adding to corn acres or could even mean more corn acres get switched to soybeans. Weather will have a very important say in the final planted acreage mix.
But, if spring weather does improve and producers are able to get into fields and start planting corn in a timely fashion acreage could increase. First of all, most analysts were looking for a 2-3 million acre increase in corn, wheat and soybeans combined. The prospective plantings report suggest slightly under a million acre increase. It is thought that there are more acres coming out of CRP and PP that could end up going mostly to corn if weather allows. Also, soybeans are expected to get a record amount of acres and while current soybean prices support this idea we are also expecting to see record world soybean stocks this year. If the projections far a record world stocks number are true then there may be an over supply of soybeans in the world if US producers plant the projected 81.5 million acres and we have a normal to better then normal growing season. Producers may begin to see this and look to switch to corn acres if prices and weather agree.
So, corn prices may need to go higher in the short - mid term to entice producers to add to corn acreage. And higher corn prices may very well find more corn acres. However, weather may pose a major obstacle to this. If weather remains threatening corn prices could continue to rally on concerns about tight stocks situation given the smaller acreage estimate... We will get into production estimates based on acreage projections in weeks to come, but weather is going to be a big factor this year with smaller acreage and it looks like the weather market may be starting early.
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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.
May Corn Daily chart:
May Soybeans Daily chart:
May 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 firstname.lastname@example.org
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.