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.
How Important is this June WASDE Report?
Jun 10, 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.
As this June 11th USDA WASDE comes and goes I find myself asking the question - will this report have a lasting effect on the grains markets? As usual the USDA will update their balance sheets to show us how supply and demand are getting along and help determine what grains prices need to do. However, this month's WASDE report may not be the most important report of the month and many of the numbers on this report may change dramatically in the next few weeks.
The June 11th USDA WASDE report will be looked at to get a grip on the old crop situation in corn and soybeans. As we come to the finish line for this last marketing year the question is how tight will corn and soybean stocks be for the next few months. Old crop soybeans in particular have had a tightening balance sheet and this has added a lot of support to the soybean complex and the grain complex as a whole. Corn too has seen ending stocks estimates fall from over 2 billion bushels to just 1.15 billion. However, this report will be the USDA's best guess on the current stocks situation rather then a hard number. The June 30th Quarterly Grain Stocks number will give us a much better idea of where we stand as far as corn and soybean stocks from now until the new crop is ready for harvest.
This may be the last report where old crop soybeans have a chance to shine. As the July contract approaches expiration market participants will have a hard time expressing bullish enthusiasm for old crop beans. There are August and September soybean contracts but the volume there is very low comparatively speaking.
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As far as new crop corn and soybeans are concerned this report may have very little significance in the long run. There are two key factors in determining the supply side of the balance sheet - acreage and yield. The national average yield will be determined by the weather in the months to come and may change dramatically from the USDA projection on this report. The acreage number the USDA uses for the June WASDE report is the Prospective Plantings number that we saw in April and acreage may have changed significantly since then. The new acreage numbers will be released on the June 30th Planted Acreage report and this will be the numbers the USDA uses going forward. As far as demand is concerned, while it is interesting to see what the USDA sees for demand for next year we are still months away from beginning the next marketing year and demand will depend on how big the crop is. If we have a huge crop and low prices demand will be stronger and if we have a short crop and high prices demand will be weaker. Here too the USDA is really just taking shots in the dark from this far out.
So, this may be the last report where old crop soybeans are in the spotlight. Aside from the old crop soybeans situation many of the key numbers in this report can change dramatically in a short amount of time. This sets the table for 2 key reports in a row with the June 30th Quarterly Grain Stocks and Planted Acreage report and then the July WASDE report which will reflect the new stocks and acreage numbers from the June 30th reports. Both of these reports have the potential to be big market movers and could have a lasting effect on the market. While this June 11th USDA WASDE may be an interesting report for old crop soybeans much of the rest of this report may be old news in a few weeks.
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July Corn Daily chart:
July Soybeans Daily chart:
July 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 email@example.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.