Aug 27, 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.

Hot and Dry or Early Frost, a Catch 22

Aug 27, 2013

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 markets, soybeans in particular have rallied recently on weather concerns and ideas of declining yield prospects, but what exactly is the market so worried about?  The first few days of the rally in soybeans was largely due to talk of the possibility of an early frost causing major damages to the crops.  Then weather forecasts turned hot and dry and concern shifted to heat and moisture stress causing major declines in yield potential.  So, pick your poison either way corn and soybean yield potentials do not seem to be as good as we had thought.  

This growing season in the US has been a strange one.  In sharp contrast to last year's drought this year started with cool temps and an excess of rain causing a near record slow planting pace.  This was a concern for the market as late planted crops often have less yield potential because when crops are planted late the concern is that they will be going through key moisture sensitive times in the middle of the hottest stretch of the summer.  This was certainly not the case for corn as temperatures during pollination were well below normal.  For soybeans however the weather pattern turned to hot and dry at just the wrong time.  

For the most part, aside from a few weeks in early July, this growing season has seen below normal temperatures and at times well below normal.  While this has kept crops from being under major stress during dry stretches, it has also slowed the late planted crops from pushing toward maturity.  This opens up the possibility for an early frost to cause major crop damage.  So warmer temperatures were really needed to help crops mature.  However, July and August have been dry for major portions of the growing area and as temperatures heat up in late August it is putting stress on corn and really catching soybeans at a bad time.  Because soybeans are behind they are going through key moisture sensitive just as temperatures heat up.  So, we needed the heat but we really needed the rain first.  Without that rain this heat, although it is helping with maturity, is causing major stress at a bad time.  

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

With today's mid-day weather forecast rain chances were increased in the next 2 weeks.  This is a positive development for crops as rains are really needed.  However, on the heals of the rain even for early September is a rush of cold air coming in from Canada that could cause some frost damage in Canada and the upper Midwest.  So, it is very tough to tell at this point how this crop year is going to end up.  Will rains be helpful or too late?  Will this heat be enough to get help push crops toward maturity before the first frost?  With late planting and a cool summer crops need a near perfect end to the growing season to realize full yield potentials.  So far weather into September does not look perfect.  The hot and dry at the end of August wouldn't normally be a terrible thing for crops, and a frost in the second or third week in September wouldn't normally destroy an entire crop either.  But, the cold wet spring and the cool dry summer may have created something of a perfect storm for crops going into September.  

At this point it is very difficult to guess at what corn and soybean yields will end up.  In turn it makes it rather difficult to predict where prices will be going.  The weather uncertainty and fear of crop loss is doing what it usually does for grain markets and pushing prices higher.  When all is said and done and fear subsides it is very likely that we do still have a large corn carryover and soybeans could now be overpriced in the world market but for the moment the path of least resistance may be higher.  

Sign up for our Morning Ag Comments: 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 while we have corn near $5.00 and soybeans near $12.00. 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?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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