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August 2012 Archive for 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.

Corn and Beans Have Conflicting Agendas

Aug 30, 2012

 

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.

Row crops were moving in different directions today with soybeans making new record highs and corn failing at key resistance. Export sales this morning were terrible for corn with a negative 1.3 million for old crop and only 6.6 million for new crop. For soybeans a different picture all together with a negative 400,000 for old crop, but a new weekly sales record of 26.9 million for new crop mostly to China and unknown destinations (also usually China). It is especially nice to see china
buying beans in a big way at current prices however this may have been the purchase that will tide them over until the South American harvest.

Charts are showing different patterns for corn and soybeans as well. The soybean chart looks like a mature but healthy bull market even though there have been 3 key reversals in the last 2 months. Just using technical studies my trend line analysis suggests we could see 1814. Corn on the other hand is starting to suggest that we could be in the process of a topping formation. The key reversal contract high on August 10th, the failed retest of highs on August 21-22 and today's failure at key resistance could all be suggesting that the corn chart is getting ready to
roll over.

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

So is it possible for corn and soybeans to spend an extended period going in different directions? Yes and no. Keep in mind that it is not terribly unusual for soybeans to put in a summer high 2-3 weeks after corn. This is usually because the key moisture sensitive stages for soybeans is generally 2-3 after corn. Things are a little different this year as we had early planting and drought like conditions over much of the growing area throughout much of the season. I do not think it is likely that corn and soybeans can sustain trends in different directions for extended
periods, but 2-3 weeks could be a possibility.

A wild card to watch over the holiday weekend will be tropical storm Isaac which has the potential to dump significant amounts of rain on Missouri, Central and Southern Illinois, Southern Indiana and Ohio. Some weather forecasts are suggesting 6-8 inches and strong winds. That sort of rain this time of year and on drought stressed crops could cause some damage. If there is much of any
damage Tuesday could be a very interesting day.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

With high volatility in a market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November 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 new crop corn above $8.00 and new crop soybeans above $17.00. 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?rid=Seifried

 

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

Grains Struggle to Find Direction

Aug 28, 2012

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.   

After a flurry of news late last week with Pro Farmer and Informa numbers grain markets have begun this week unsure of any sense of direction.  The Sunday night session sure looked like we were going to see another spectacular rally day Monday only to be left with a mild sell off.  Then Monday night into Tuesday it sure looked like we were going to see follow though selling, but we ended up very mixed with soybeans 21 cents off lows and corn making new lows on the close.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

I'll tell ya, the momentum traders are sure getting chopped up in this. But the bigger question here is - Are we taking a much needed break in volatility before this rally extends another leg higher?  Or, is this the kind of market weirdness, or indecisiveness that leads to an eventual precipitous sell off?  Time will tell, but I can not help asking myself the question - what new bullish news will we get to feed this aging bull?  Maybe poor results off the combines.  Maybe a slash in harvested acreage. (we almost certainly will not see that until November, and with Informa raising planted acreage you have to wonder if it ends up a scratch anyway).  Maybe we get an early frost, wouldn't that just be the cherry on top?  The point is we need something to keep this going right now and I'm not sure what that will be or if it will be.

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

With high volatility in a market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November 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 new crop corn above $8.00 and new crop soybeans above $17.00. 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?rid=Seifried

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

Another Key Reversal in November Soybeans

Aug 23, 2012

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.   

Grains were lower today as the November soybeans posted a third key reversal in a little over a month.  A key reversal happens when a market sets new contract highs (new record highs in the case of soybeans) and then proceeds to close below the previous days low.  Corn did not post a key reversal as it did not set new contract highs today, but ended down 20 cents.  This means that now both corn and soybeans have put in 3 key reversals since the July 11th USDA report.  Key reversals certainly are not a silver bullet that tells us that the high is in a market, rather a red flag warning of the possibility of change coming soon.  And, as in the case of corn and now soybeans, 3 key reversals will be a big warning sign for the technical traders who may continue to follow the trend but will be very nervous on any weakness.

Some of the lower trade today can be tied to better then expected yield findings from the Pro Farmer crop tour.  I really get the feeling that a majority of the market was expecting Pro Farmer to find sharply lower yields then the current USDA estimate.  This has been the case in some areas such as South Dakota, but most of the numbers seem to be coming in along the lines of the USDA's guess.  If Pro Farmer gives us a final yield near or above the USDA tomorrow then it becomes hard to justify the bull cry of lower yields yet to come from the USDA.  Especially since historically Pro Farmer is generally the more friendly of the two.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

The US Dollar was lower today on continued fuzzy feelings from Europe.  I'm not sure we would say that the issues in the Euro Zone are behind them, but for now the chart of the US Dollar looks to be rolling over to the downside.  This may become a bigger supporting factor for the grains down the road.

Even with the bearish price action today I still feel that the breakout to new highs in soybeans and new high close in corn earlier this week could be suggesting another leg higher for the grains.  It is difficult to say how long or high this might go, but the bottom line is that we could be getting ready to add more premium to some already good prices.  We could also see markets put their highs in and roll over in the next two-three weeks so producers need to take a long look at prices above $8.00 in corn and $17.00 in soybeans.  Patience may be a virtue for now, but waiting to long could have its consequences as demand should not be as difficult to ration in a questionable global economy - as the USDA has been hinting toward by lowering demand more then expected on the last two monthly reports.

Knowing that the technical traders will be nervous longs, the possibility that we will have a vacuum of new bullish fodder over the next few weeks, and the potential for producers to hedge at what are currently great prices - I have to be concerned that when this mature bull turns it may be violent.

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

With high volatility in a market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November 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 new crop corn above $8.00 and new crop soybeans above $17.00. 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?rid=Seifried

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

Corn and Soybeans Post New Record High Closes

Aug 21, 2012

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.   

 

Sharply higher trade in the grains today was fueled by crop tour commentary and a sharply lower US Dollar.  Commercials were rumored to be aggressive buyers today as well.  The Pro Farmer crop tour released their day 1 results today and they were rather disappointing, especially in South Dakota.  Pro Farmer is looking at an average yield of 110.5 for Ohio compared to 160.53 three year average, and 74.26 for South Dakota compared to 143.88 three year average.  The news from South Dakota was unsettling as we had thought yields could be pretty good for a good part of the state.  Early reports from today's leg of the tour are suggesting a little better then expected yields for Indiana.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

The US Dollar was sharply lower today on good news and fuzzy feelings from Europe.  I'm not sure we would say that the issues in the Euro Zone are behind them, but for now the chart of the US Dollar looks to be rolling over to the downside.  This sparked a bit of a commodity wide rally today as speculators ran to hard assets.

The breakout to new highs in soybeans and new high close in corn could be suggesting another leg higher for the grains.  It is difficult to say how long or high this might go, but the bottom line is that we could be getting ready to add more premium to some already good prices.  We could also see markets put their highs in and roll over in the next two-three weeks so producers need to take a long look at prices above $8.00 in corn and $17.00 in soybeans.  Patience may be a virtue for now, but waiting to long could have its consequences as demand should not be as difficult to ration in a questionable global economy - as the USDA has been hinting toward by lowering demand more then expected on the last two monthly reports.

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

With high volatility in a weather market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November 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 new crop corn above $8.00 and new crop soybeans above $17.00. 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?rid=Seifried

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

Five-Year Study on Soybean Price Trends

Aug 16, 2012

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.   

After seeing the updated USDA carryover numbers on last Friday's report, it occurred to me that we were not looking at the lowest soybean ending stocks numbers we have seen from the USDA in the last five years. So I had to do some digging back into old reports, which thankfully are kept on file by the USDA (our tax dollars at work). And there are some interesting comparisons that we can make to give us perspective on our current situation. A major note here, though -- our economy has been on a pretty wild roller-coaster ride in the last five years and it would be foolish to not take that into account as well.

For this exercise, I am looking back at the September USDA reports. Here is what the projected U.S. and world ending stocks numbers were:

2008/2009 - US - 110 million bushels / World - 40.22 million metric tons

2009/2010 - US - 150 million bushels / World - 62.85 million metric tons

2010/2011 - US - 225 million bushels / World - 68.82 million metric tons

2011/2012 - US - 145 million bushels / World - 51.94 million metric tons

2012/2013 - US - 115 million bushels / World - 55.66 million metric tons

As you can see, we were looking at a slightly tighter U.S. and significantly tighter world carryover in 2008/2009. Leading up to this, we saw soybeans rally to their previous highs of $16.63 placed back in July 2008, but by the time this report came out in September of 2009, soybeans were back below $11.00. There was another significant change that happened in this time frame as well -- the S&P 500 Index saw a precipitous drop starting in mid 2008. This sharp turn in the American economy certainly helped push grain prices lower than the balance sheet would have suggested.

Fast-forward to 2012 and according to the USDA, we find ourselves in a similar situation as 2008 as far as U.S. stocks; however, the world outlook is not nearly as tight. And, after five years, the S&P 500 is inching back to pre-2008 crash levels. The fact that the S&P 500 is getting back to where we were five years ago is impressive given the general weakness of the overall U.S. economy, but it is very unimpressive considering the growth that we should expect over a five-year span. Overall, the economy remains a concern, and consumers are much more cautious and price sensitive than in 2008.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

I feel it's pretty safe to say that given the balance sheet the USDA is showing us and given the current economic situation, we should see soybeans put in a high plus or minus 50 cents off the previous July 2008 highs (plus 50 cents based on inflation, minus 50 cents based on a more comfortable world carryover). So far, soybeans have bested the July 2008 high by $1.14. 

It very well may be the case that the USDA will have to lower average yield numbers or harvested acreage or both, so we could end up with a balance sheet much tighter than in 2008/2009. And, even if the soybean numbers stay the same and the corn balance sheet gets even tighter, the beans could go along for the ride. Also, it seems unlikely that we are set for a major stock market crash again, mostly because we are not as strong as 2008. But (yes, there is a "but," and it's a big one) if this is as tight as the balance sheets get for corn and beans and South America produces at least an average crop, we could see some pretty significant downside potential from were we stand currently. Look at the continuation chart and see how much we have come off highs in the past. Or just look at where November 2013 soybeans are.

With the recent beneficial rains for soybeans and the potential for a massive South American crop with record acreage, I would be a little nervous about prices up here. Yes, South America could have another major drought year, and corn could pull beans higher, but these are big what-ifs that I prefer not to risk. I would much rather use an option strategy that leaves some room for upside potential yet gives me a floor at or near current prices.

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

Or just let me know and I can show you the strategies that we are using. Have a great day!

November Soybeans Daily chart:

Continuous Soybean Monthly chart:

Continuous S+P 500 Index Monthly chart:

 

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have new crop corn near $8.00 and new crop soybeans near $16.00. 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 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?rid=Seifried

 

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. 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

Big Test for a Bull Market

Aug 14, 2012

 

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.   

Corn, Wheat and Soybeans have been on the defensive since the first few minutes after last Friday's key USDA report.  The thing about that report was that although the ending stocks for corn and soybeans are tight due to the drought conditions, they are not nearly as tight as we were fearing given the large cut the USDA made in yields.  We saw lower then expected yield numbers yet ending stocks came out as expected, so the surprise was the extent of the cut in demand at these prices.  The USDA obviously feels that demand is price sensitive enough this year that the $3.00 plus rally in corn and $4.00 plus rally in soybeans had made a significant dent.

It would be one thing if the USDA had not aggressively cut yields on this report because the bull camp would be rallying around the cry - They will have to cut yields further in coming reports!  However, with a 123.4 bushel an acre yield for corn and a 36.1 bushel per acre yield for soybeans it seems likely that the USDA feels they have made deep enough cuts for now and will not want to make any significant changes until they release their final harvest numbers in November.

For soybeans in particular the ending stocks number has to be concerning.  Yes, 115 million bushels is tight and we could eat through that very quickly.  However, it is not the tightest ending stocks number we have seen from the USDA even in the last 5 years (for example, on the September 2009 USDA report we were looking at 110 million bushel carry over and beans were trading just over $10.00) and yet here we are trading record high prices.  Furthermore, we are lacking the outside inflationary pressures and the inelastic demand we had in 2006-2008.  The fact is that the economy is not doing as well as it had in years past and demand for things even from the common consumer is much more price sensitive.  We do need to have high prices so that there are cutbacks in demand, but given this current USDA balance sheet it seems we may have over shot the mark.  Also, South America is looking to plant record acreage and if they can have a decent crop this year we could be flooded with cheep SA beans come Feb-April.

When Does Weather Matter: http://www.zaner.com/offers/?page=6&ap=tseifrie

For corn the technical picture now starts to get a little muddy as we have seen three sweeping key reversals in basically a month, book ended by USDA reports from July and August.  Now, a key reversal is definitely not a silver bullet when it comes to ending a trend, however 2-3 of them in a short period of time have to be seen as a warning sign.  Unlike July's report day key reversal which was followed by two strong days that eventually made new highs, last Friday's key reversal has so far been followed by two down days and we currently sit 60 cents off highs.  Again, this does not make it certain that the bull market is giving up the gun, but it is certainly cause for concern and bears watching.

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

The bottom line is that I am not trying to scare people, or change anyone's mind.  I want to touch on a side of the market that maybe many people are not seeing.  And, maybe explain some of the recent market reactions.  The point of this exercise and the reason for the title of this piece is that we are at a cross roads here and now.  Gone are the days where we come in and see a hot and dry forecast and rally 30-40 cents.  Weather can not be our bullish fodder anymore.  So this is a test of this bull market.  To continue to make new highs we will need to find some new bullish rhetoric and/or a new bullish stimulus to keep us going.  It does occur to me that the USDA's final numbers in November could be bullish due to a drop in harvested acreage...  but right now that seems like a long ways off.

With high volatility in a weather market, option strategies may be a good tool for hedgers and specs alike.

So here's my number...  Call me maybe? 

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 while we have new crop corn near $8.00 and new crop soybeans near $16.00. 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 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?rid=Seifried

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. 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

For the USDA Report

Aug 09, 2012

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.   

 

Corn set new highs and posted a new high close as soybeans rallied 50 cents today in front of tomorrow's key USDA report.  We ended up right where I felt we should be going into the report as we spent so much energy getting up here based on our guesses or fears about production losses and tomorrow the USDA weighs in.  As far as this report is concerned, my views have changed a bit in the last few days.

I was under the impression that the average trade guesses were going to be wildly bullish when it came to ending stock numbers.  As it turns out, the trade guesses are really not far off my projections.  The average trade guess for 12-13 corn ending stocks is at 660 million bushels and I am currently using a number of 683 million bushels, and for soybeans the average trade guess for ending stocks is 112 million bushels while I am using 114.  I guess I just felt safe in assuming that with the prices we have that the trade was looking for a sub 500 in corn and sub 100 beans.

I see this report playing out in one of three ways depending on how the USDA wants to handle the demand side of the equation.  It really depends on how aggressive the USDA wants to be on cutting demand on an August report.  There is a good chance that they may temper their changes in order to wait for more concrete demand information over time, or they might want to tweak their numbers to keep prices elevated to help ration demand for now.

Options on Beans for People Who Don`t Know Beans About Options: http://www.zaner.com/offers/?page=8&ap=tseifrie

The first possibility I see is the USDA aggressively lowering yield while leaving demand unchanged.  This would result in ending stocks far lower then the average trade guesses.  This would also be a wildly bullish scenario sending grains to new, lofty highs.  However, I do not see the USDA wanting to significantly cut ending stocks now and then build them back up in future reports based on lower demand.  I'm putting a 15-20% chance on this scenario.

The second possibility I see is the USDA modestly lowering yield and aggressively lowering demand, ripping off the band aid so to speak.  This could result in higher ending stocks numbers then expects and could also put a top in the market until after we see harvest lows.  Although I do believe they would be justified in doing this, I am not sure the timing is right.  The reason I think they would be justified in doing this is because the high prices we have currently should go a long way to ration demand.  My reasoning for this is mostly due to the current economic situation domestic and abroad.  This is not like 2008 when high prices had a hard time curtailing demand.  Demand for grains and products produced by or with grains are much more price sensitive these days.  Your average American is not feeling rich because their 401k can do no wrong like the first half of 2008.  Everybody's pocket book is tighter and demand for meats, ethanol and other products will be highly sensitive to price unlike in recent years...  Again, I think this is an unlikely scenario for this report because even though demand will be very price sensitive the USDA may feel we need more time up here to do the job.  I put a 20-25% chance on this scenario.

The third possibility I see is the USDA modestly lowering yields and modestly lowering demand, or leaving demand unchanged and just slightly lowering yields at this time.  This is the scenario that the average trade guesses represent.  Basically this would be a punt for the USDA and the market will know it.  After making whole sale changes on the last report the USDA may want to only make small changes this time around, fully knowing that further changes will be necessary on both sides of the balance sheet but effectively buying time to collect more data and make a more careful move.  If this is what we see tomorrow it will not be a very popular move and traders that know what they are looking at will shrug it off and call it what it is - a punt.  However, I do think this scenario would be met with a modestly bullish reaction as the trade collectively pats itself on the back for "getting it right".  I put a 60-65% chance on this scenario.

For some this last scenario will justify $8.30 corn and $16.40 beans.  Once again this is where I differ.  For reasons outlined in the second scenario I really feel that demand rationing is not going to be as hard as some people think given our global economic situation.  Also, for soybeans we may have a bail out coming in the form of record planted acreage in South America.  No guarantee they come off without a hitch, but if they do we will be flooded with flooded with cheep beans from south of the border come Feb thru May.  Finally, I am not so sure a 660 million bushel carry over in corn is tight enough to hold prices above $8.00 even without price rationing, same fro soybeans with a 112 million bushel carry over and $16.00.

Over the next few months, it seems certain that there will be another sizeable decline in yields, however I would also imagine that we could see a significant drop in demand based on current prices.  The question will be - does the resulting carry over justify these prices?

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

With high volatility in a weather market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November 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 new crop corn above $8.00and new crop soybeans above $16.00. 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 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?rid=Seifried

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. 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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