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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.

Is it a Good Thing the USDA is Shut Down?

Oct 01, 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.        

The US government could not come to terms by Monday night and effectively shut down leaving lots of questions about what happens to the USDA and if there is going to be a report on October 11th.  I just submitted our estimates to the newsies, but I am not sure this report happens and if it does I'm not sure it will be taken seriously.  After the September USDA WASDE report and the Quarterly Grain Stocks report I wonder if maybe it is a good thing if the USDA takes a break.  

In the past we have all disagreed with the USDA at some point.  Producers, end users, analysts, speculators...  We have all called the USDA crazy for disagreeing with us.  But, in the past there did seem to be a method to their madness.  Lately I'm not so sure.  This has become increasingly evident in the Quarterly Grain Stocks reports and the most recent one was no exception.  

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

Earlier this year we saw an unprecedented shock in a Quarterly Grain Stocks report when corn stocks came in almost 400 Million bushels higher then expected.  And, in a drought year where corn production takes a hit 400 million bushels is a lot of corn to miss.  How could the USDA have been so far off on the Monthly WASDE reports leading up to this?  The result was a 3-day limit down shock to the market.  If the USDA had been more accurate in their estimations this highly volatile move would have been smoothed out and spread out over time allowing longs to get out and, (more importantly in my book) allow producers a better opportunity to get hedged at higher prices.  This was a gross miscalculation made by the USDA and it couldn't have happened in a more important year.  It was the most wrong they have been, maybe in history and market participants, especially producers, paid for the USDA's error.  

Now with this last Quarterly grain stocks report the USDA did it again.  This time it was not as big of a raw number but as this was the final stocks number of the marketing season it came close on a percentage basis.  This time around the reaction wasn't as violent maybe because the market was already in a bearish mood but also maybe because to some extent we have become jaded to the USDA's errors.  Either way we "found" an extra 141 million bushels of corn that it seems the USDA had been overlooking.  Where does 141 million bushels of corn hide you might ask?  Well, it really wasn't hiding at all.  It was abundantly clear that the USDA had overshot the mark on ethanol demand by 80-95 million bushels.  On the September WASDE report the USDA had a chance to rectify the miscalculation but instead added 15 million bushels to ethanol demand.  At the time I was wondering if the USDA was doing this in order to offset a production number that was too high, as it turns out they had no grand plan or clue for that matter.  

This is really a big problem for Ag markets.  If the USDA does not get their act together we will stop paying attention to them as best as possible.  I have said many times before -  we can argue with the USDA until we are blue in the face but in the end these are the numbers we have to trade.  Well, I am starting to put some more thought to that statement.  I suppose it is possible that the market at some point begins to pay more attention to private estimates then the USDA.  This is dangerous however as we never really know the agenda of the private analysts.  They could be influencing the market for their gain for all we know.  This is why the USDA was so important to market integrity.  The USDA is charged with supplying the market with non biased and accurate as possible information.  

So, maybe the USDA need some time off to collect their thoughts and think about the year they have had.  Maybe now is the time to get back to the concept of providing un-biased and accurate information.  Because, in the end the markets, like it or not need the USDA.  But the USDA needs to be more accurate in order to smooth the price discovery process rather then continuously shock the market.  

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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