Oct 2, 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.

How do Sept 30th USDA Reports Impact New Crop Soybeans?

Sep 30, 2014

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.       

At first glance the number that sticks out the most on this Quarterly Grain Stocks report is soybean stocks.  This number represents old crop soybean ending stocks and therefore new crop soybean beginning stocks.  Soybean stocks stick out the most because at 92 million bushels not only did this number come out well below trade expectations but it was below the low end of trade guesses and it is the tightest ending stocks figure we have seen in soybeans for a long time.  This certainly has an impact on the new crop soybean balance sheet, but was there another number today that may have a bigger impact?  

At 92 million bushels this is the lowest soybean ending stocks figure in recent history and it is well below what is generally considered bare minimum "pipeline" supplies.  For comparison, even the drought effected 2012 crop had an ending stocks figure almost 50 million bushels higher.  In other words we were dangerously close to running out of soybeans.  This tight situation has been somewhat reflected in the cash market in the last few months and may have caused sharply higher futures prices if we had seen it earlier.  So at face value this is a very bullish number vs trade expectations but it may have come too late to get too excited about considering the massive crop we are in the process of harvesting.  

It will be interesting to see how the USDA handles this on the upcoming WASDE report on October 10th.  In the last few reports the USDA has made a fine mess of the old crop soybean balance sheet by using a negative 94 million bushel residual.  On paper is one thing but in real life this hugely negative residual is impossible as the residual, by nature, is a positive number.  So, the question will be - does the USDA leave demand unchanged and move the residual to a more natural number of at least zero or even a positive number?  Or, does the USDA continue to push the unrealistic negative 94 million bushel residual and increase demand or decrease imports?  Or a combination of both?  We would hope to see positive residual number on the next report which would suggest demand would stay unchanged or be up only slightly.  

How the USDA handles the old crop balance sheet will have an impact on the new crop balance sheet.  If they were to choose to leave the residual at a negative number and increase demand this could suggest that demand for new crop soybeans should be going higher as well.  Either way the drop in ending stocks will have an impact on the new crop balance sheet as lower ending stocks for old crop mean lower beginning stocks for new crop.  Right now, if we were to leave everything else on the soybean balance sheet unchanged we would see new crop soybeans ending stocks drop to 437 million bushels down from 475 million just based on lower beginning stocks alone.  

Sign up for our Morning Ag Hedge newsletter!  Sign up here: http://www.zaner.com/offers/?page=17  

But there was another number released by the USDA today that may end up impacting the new crop balance sheet even more then implied demand or beginning stocks.  Along with this Quarterly Grain Stocks report the USDA took the opportunity to revisit 2013 production.  This was highly expected as most analysts felt they were too low on production and we were concerned they had missed some bushels or acres during the two week government shut down during harvest last year.  As it turns out they missed a little bit of both.  The USDA updated 2013 soybean crop by increasing production by 69 million bushels to 3.358 billion bushels.  They did this by increasing acreage by a little over 300k acres and increasing the national average yield by .7 bushels an acre.  

This increase in production and how it was done could have two potential impacts on the new crop soybean balance sheet.  One, this helps explain some of the difference in gaurenteed acres we have seen between NASS and FSA.  Last years number may have simply been too low.  Two, and maybe the most important feature of the reports today, is that with yields increasing for last year this could be suggesting that yields for this year are understated as well.  With USDA NASS crop conditions 19 points higher in the good to excellent year over year we would expect the national average soybean yield to be 3.6 to 4.6 bushels an acre higher as well.   

This would suggest that the USDA may need to increase their current yield estimate by 1-2 bushels an acre which would impact final production significantly.  Based on the USDA's current harvested acreage figure every 1 bushel an acre increase in yield equated to about an 84 million bushel increase in production.  If this is the case we would expect a higher production figure to more then offset lower beginning stocks and slightly higher demand leaving us with an even larger projected new crop soybean ending stocks number.  

This assessment is based on logic and reasoning.  The USDA however, does not always feel inclined to be bound by such things like we do in our every day life.  The negative 94 million bushel residual that they presented on the September report was evidence of that.  So, this sets up for what will be a very highly anticipated October 10th USDA WASDE report when they will address the balance sheets.   

We have awesome CRB wall charts to give out!  They are weekly bar charts that go back 10 years to Oct, 2003 and are about the size of a poster.  If you'd like one sign up here - Soybeans: http://www.zaner.com/offers/index.asp?page=21 

While the USDA can be unpredictable at times and other times be just flat out un-comprehendible we would think that the very good crop conditions will sway them toward raising their new crop soybean yield which could lead to a higher ending stocks estimate.  We would also think (maybe hope rather) that given the opportunity they would like to fix the broken old crop balance sheet by remedying the negative 94 million bushel residual figure and not trying to play around with other demand numbers that we have a pretty good handle on such as exports or crush.  

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.  Also, follow me on twitter @thetedspread if that is your thing.   

December Corn Daily chart:

November Soybeans Daily chart:

December 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

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.

Looking Past this Corn Harvest

Sep 25, 2014

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.       

At the moment the corn market is 100% focused on harvest, as it should be.  And this particular corn harvest is expected to produce a record national average yield and a record production.   Much of this record production has yet to be sold and will likely be putting a significant amount of pressure on prices as harvest rolls.  However, once we get past this massive harvest in front of us the corn market could go through a bit of a transition.  

The corn market has decidedly bearish short term fundamentals at the moment.  We are bracing to absorb a record corn production and some of the largest projected ending stocks in recent history.  To make matters worse it seems that a large amount of this corn has yet to be sold which means there could be significant selling pressure off the combine.  These bearish short term fundamentals are hard to look past, but once we do get past this harvest the corn market may have some more optimistic fundamentals to look at.  

At current prices corn acreage could drop dramatically.  It is not that other crops, say soybeans for example, are that much more profitable but the cost of production is lower.  Lower cost of production means that producers have less at risk and this could encourage a shift away from corn acreage.  Unless corn prices are able to rally we could be planting a very low number of corn acres next year.  So, the corn market may need to go out and buy some acreage back.  

Sign up for our Morning Ag Hedge newsletter!  Sign up here: http://www.zaner.com/offers/?page=17  

If the corn market is unable to buy acreage back and corn acres drop dramatically next year it may lead to a situation where we are under producing corn.  This might mean that the corn carry over we have this year will be very important to carry over into next year.  Right now the projected carry over is very large at 2 billion bushels, but if acreage drops we may need every bushel of that for next year.  This may mean that we have to protect that carry over number and one way to ensure a large amount of corn is carried into next year would be to slow demand with higher prices.  It seems silly to talk about price rationing in a year with a historically high carry over but if we can not get corn planted for next year we may have to put a premium on the bushels we have now.  

For now this is all well off into the distance.  The short term fundamentals of this huge corn harvest will likely continue to dominate the corn market for some time.  However, once we get into the acreage battle corn is the one who needs to fight the hardest.  If corn is unsuccessful at buying the acreage it needs we may need to put a premium on the ending stocks we have.  

We have awesome CRB wall charts to give out!  They are weekly bar charts that go back 10 years to Oct, 2003 and are about the size of a poster.  If you'd like one sign up here - Corn: http://www.zaner.com/offers/index.asp?page=20  

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.  Also, follow me on twitter @thetedspread if that is your thing.   

December Corn Daily chart:

November Soybeans Daily chart:

December 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

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.

200 Million Bushels Away from a Bull Market in Wheat

Sep 23, 2014

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.       

The domestic balance sheet for wheat in the US is not all that bearish.  Wheat is very much a global market and the global market is very much the bearish driver for wheat.  Too much or too little rain this year has caused production problems for wheat in the US, but with world wheat stocks ballooning it is hard to get bullish about wheat at the moment.  But, if export sales were to pick up and we were to challenge the current USDA export estimate a bull market might not be as far away as some may think.  

Dry conditions in the SW Plains this year did a lot of damage to wheat growing in those areas and wet conditions in the north also caused production issues.  So wheat is not in the same huge crop boat as the row crops are this year, at least domestically.  At the same time global wheat stocks are ballooning.  We have gone from a 175 million metric ton world carry over in 2012/2013 to a projected 193 million metric ton world carry over for 2014/2015.  This means that there is a lot of wheat in the world and a lot of competition on the global export market.  While we certainly have had our production concerns this year we have still manage to produce well more then our domestic demand and a weak export outlook leaves us with a comfortable carry over.  

Currently the USDA is projecting a sharp drop from year to year in our wheat exports due to strong global competition.  Right now the USDA is projecting export demand of 900 million bushels compared to last year's 1.176 billion bushels.  With this lower export demand estimate the USDA is projecting ending stocks at 698 million bushels, a 109 million bushel increase from last marketing year.  For now the lower export pace is certainly justified as wheat shipments for this marketing year to date are only about 2/3s of what they were last year.  However, with prices continuing to drop export demand could pick up at some point (it is unclear at what point though).  So, if there was an up tick in US wheat exports this would have a significant impact on the wheat balance sheet and possibly prices as well.  

We do not have wheat charts, but - We have awesome CRB wall charts to give out!  They are weekly bar charts that go back 10 years to Oct, 2003 and are about the size of a poster.  If you'd like one sign up here - Corn: http://www.zaner.com/offers/index.asp?page=20  

If, for example, some of the major wheat importers of the world were to decide not to buy Russian/Ukrainian wheat and some of this business were to come to the US it could bring a significant increase in US exports.  Another possibility is that some global importers look at US wheat as a premium product and choose to purchase US wheat given equal prices and shipping rates.  With US wheat prices continuing to come down this could be a possibility at some point.  

The bottom line is that if wheat prices continue to fall and/or US export business picks up significantly it would not take much to put the wheat balance sheet in a position where some price rationing could be necessary.  Now, unless there is a major issue with another major global wheat exporter it seems unlikely that prices could go much higher without pricing US wheat out of global competition. The reality is however that wheat could be just 200 million bushels of increased export demand away from a shot at a bull market.   

Sign up for our Morning Ag Hedge newsletter!  Sign up here: http://www.zaner.com/offers/?page=17  

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.     

December Corn Daily chart:

November Soybeans Daily chart:

December 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  

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.

Adding Pennies to Corn Bushels

Sep 18, 2014

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.       

Right now corn seems stuck in a strong down trend.  The frost damage fueled attempt at a bounce from earlier this week has been erased and corn is once again flirting with contract lows.  Enormous yield reports coming from Central Illinois and yet another private analyst's super sized yield estimate has moved into the focus for now.  Going forward the emphasis on corn has to be adding pennies to bushels to help with the bottom line.  While short positions have worked well to this point could we getting close to a time where it may be beneficial to be looking for a strategy to capitalize on a bounce?  

Earlier this week a hard frost damaged many crops in the northern growing areas.  Estimates suggest that as much as ten million acres were effected.  At this point the true amount of damage is a little unclear as we have heard mixed reports.  Some will say that the damage was fairly minor and that the freeze may have only taken 5% of the remaining yield potential while others report near total loss in some areas.  For the moment the market is looking at this as having little impact on the total national production figure.  Combines will give us a much better picture but, we would not be surprised if the market is underestimating the impact on production.

Sign up for our Morning Ag Hedge newsletter!  Sign up here: http://www.zaner.com/offers/?page=17  

In the mean time the bear camp and the market as a whole has taken hold of very big yield reports coming out of some early harvest efforts.  There have been reports coming out of Southern and Central growing areas that have been very large and well above previous record for the area.  To an extent the market should be expecting this as most of the huge yield reports are coming from areas that we knew were the best looking crops.  It will be interesting to see what happens as the harvest moves further North, especially into areas effected by early frost.  We would expect yield reports to less and less fantastic in the next few weeks.  We may even get to the point where we can legitimately question the huge national average yield estimates that are flying around the market right now.  There is also a question of planted acreage after a wet spring.  Some analysts are looking for a 500-800k reduction in acreage and this could further cut into the production number.  If this were to be the case, could we expect a mid-harvest rally off of lows?  

If we were to get a mid-harvest rally off of lows it may be an opportunity for producers not only to sell cash corn higher but maybe to also add to the bottom line of sold bushels as well.  It is always a very tricky proposition to try to pick a top or a bottom in any market, however, and you would have to play your cards just right.  For this reason a more limited risk option strategy may be a useful tool.  If it is possible to spend 8-10 cents on a long options or long vertical spread trade that has a potential value of 60 cents this may be an interesting thought.  If you can define your risk to no more then 8-10 cents per 5,000 bushel and have a realistic 25-50 objective it may be a reasonable risk/reward proposition.  Keep in mind however, this is not a true hedge for producers.  It will not help protect the downside.  But, these are interesting times for grain marketing and if you can live with the risk it may be a way to add pennies (hopefully dimes) to corn bushels.  

We currently have a strategy that we are looking at for producers who are looking for ways to do something like this.  Right now we think it is too early for something of this nature as we still have a big harvest in front of us.  However we do think this could be an opportunity at some point in the near future and we do have a specific set up we are looking for.  Give us a call if you would like to hear more about it.  

We have awesome CRB wall charts to give out!  They are weekly bar charts that go back 10 years to Oct, 2003 and are about the size of a poster.  If you'd like one sign up here - Corn: http://www.zaner.com/offers/index.asp?page=20

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.     

December Corn Daily chart:

November Soybeans Daily chart:

December 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 

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.

Is a Damaging Frost Coming?

Sep 04, 2014

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.       

In the last few days the soybean market has been focused on two things.  One, crop conditions improved by 2% last week.  Two, analysts are starting to release production estimates in front of the September USDA report and we have heard some very big production and national average yield numbers.  Both of these suggest that in fact this big crop is getting bigger.  This has put a lot of pressure on soybean prices pushing the November soybeans to new contract lows.  However, there is a potential weather issue that has been creeping into forecasts that the trade has largely ignored to this point.  Frost.  

As of right now there are some weather forecast models that are calling for a cold blast during the September 12-15 time frame which if realized could result in frost and potential freeze damage for the Northwestern Plains, the Northwestern corn belt and maybe even part of the Midwest.  This is a big if however as there is substantial disagreement between the forecast models on this event.  The GFS model, seems to be the most threatening, was a little cooler in the NW Plains and Midwest for the Sep 12-14 time frame as of mid-day Thursday.  

We have awesome CRB wall charts to give out!  They are weekly bar charts that go back 10 years to Oct, 2003 and are about the size of a poster.  If you'd like one sign up here - Soybeans: http://www.zaner.com/offers/index.asp?page=21

For now many forecasters are expecting this cold blast to moderate and for the vast majority of the US growing area to miss out on any major damage.  This certainly could be the case as most of the areas that could potentially be effected have had good rains recently and humidity levels are high.  Right now the dew point in North Dakota ranges from 48-64 which would make a hard freeze very unlikely.  The idea is that air can change temperatures quickly but water takes more time.  For a hard frost to occur these dew points would have to drop significantly in the next week and a half and that would take a lot of wind and dry air to flush out the humidity.  

It is also not exactly clear what losses would look like if this were to occur ten days to two weeks from now.  We have hear many reports on crops in the areas that could be affected and there has been a lot of variance on where crops will be at that time.  Some producers suggest this could be a devastating event if it were to happen.  Others suggest that at that point it may make little difference for soybeans and take a bit off the top end for corn.  

This is likely why the soybean market has chosen to ignore this frost threat for now and focus on the very good crop conditions and the big production potential.  However, if this frost/freeze event is still in the forecast next week confidence in this event will begin to build and the market could quickly shift its attention to potential production losses.  

Sign up for our Morning Ag Hedge newsletter!  Sign up here: http://www.zaner.com/offers/?page=17  

*Next week we will be in North Dakota for the Big Iron Farm show and to visit some clients.  So, I will have more to say about the North Dakota crop when we get back.  If you are going to Big Iron come say hi.  We are part of the Marketing Panel on Tuesday Sep 9.  TheTedspread will return Sep 16.

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.     

December Corn Daily chart:

November Soybeans Daily chart:

December 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

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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