TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY 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.
Both old and new crop corn scored new highs early in Thursdays trade, but it was a much different story by the end of the day. Weakness in wheat and soybeans did not help corn's bid to continue higher but there are some other factors at play as well. So, is the rally over in corn?
All of the 2017 contract months in corn made new highs for the year early Thursday but then proceeded to reverse lower by the end of the day. At points corn looked like it wanted to disassociate itself from weakness in soybeans and wheat but sell pressure came on strong again going into the close. While corn does have some compelling reasons to justify the rally off of the lows, it may be time to at the very least take a breather.
The projections for lower acreage and improving global and domestic demand have been reasons for corn to rally almost 40 cents off of the early December lows. The large speculators (funds) have also reversed their position going form a large short position to now being long. In the long run the funds might want to continue to build a large long position in corn which would be supportive for corn prices.
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However, in the short run corn may have just run into substantial resistance. From a technical point of view corn tested and failed at the upper end of the trend channel it has been in. This could have technical traders on the sell side of the card for now. Fundamentally, while corn exports and ethanol usage has been good it has slowed down in the recent weeks. Export sales for corn came in below expectations on Thursday. Ethanol production (while still at good levels) has slowed two weeks in a row while stocks have been building, which is not a great sign.
The timing is odd as well. Many years grains are testing harvest lowsin the month of February, especially in years we set record production. The reasoning for this is that if we have big stocks and the South Americacrop looks good there is no big need to add acreage. Which brings us to an interesting topic - corn acres for the upcoming US growing season. I'll get into this in more detail another time, but at least a portion of the trade is now starting to think that corn might not be loosing as many acres to soybeans as originally thought.
In the long run I think there are reasons to be optimistic on corn prices. In the short run though corn could be do for a correction. The idea that "low prices cure low prices" might be working for corn as low prices seem to be cutting out some acreage and increasing demand. Corn seems to have caught the funds attention as a value buy. Weather could be another interesting story this year. That being said, (and I'll keep saying it) producers need to be looking to sell at realistic prices that work for them. Do not hope for a fund buying spree or a weather event to price corn. Use cash sales or the board to lock in prices when opportunities present, and look for other ways to manage upside opportunity such as futures or calls.
Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, 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.Follow me on twitter @thetedspread if you like.
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MarchCorn Daily chart:
MarchSoybeans Daily chart:
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.