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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 the Low in for Soybeans?

Dec 06, 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.   

In less then a month soybeans have rallied almost $1.20 a bushel from the lows.  Is this a new bull trend, or is this a technical correction in a bear market?  Today soybeans traded both sides of unchanged ending the day with a rally to new recent highs.  Export sales this morning were terrible once again for corn, average for wheat and really good for soybeans.  At first soybeans had more of a "buy the rumor sell the fact" type reaction to the stellar export numbers as much of the strength in soybeans so far this week has come from ideas of China buying.  But, in true bull market form the selling gave way to bullish enthusiasm and right back up we went.  So should we expect soybean prices to continue to make gains?

Well, it sure is great to see big numbers for soybeans on the export sales report.  And this type of action could continue for a while, but eventually South America will take over and likely price US soybeans out of the global picture.  South America sure has had some weather issues of their own with excessive rains causing planting delays.  This has possibly extended the window of opportunity for US exports but it is rare to get an extended rally based on too wet conditions.  The fact of the matter is that South America will end up with record planted acreage and good subsoil moisture.  Their growing season is far from over and while it is certainly possible that it does not rain again for 3 months (remember our last summer?) it seems unlikely due to a beneficial El Nino pattern they have enjoyed thus far.

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Technically soybeans needed a bounce off of lows as the market was in an extreme oversold condition back in the first half of November.  The short term trend recently changed to higher as the 9-day moving average crossed over the 20-day, but the long term trend is still down as both the 9 and 20-day moving averages are below the 50-day.  The bounce has been impressive and thus far represents a 27% retracement of the move from September highs to November lows.  But soybeans now face a tough challenge of besting the 50-day moving average which is just 8 cents higher.  There is also psychological resistance at the $15.00 mark and the fibonacci 33% level near $15.20.  The chart formation must also be a concern for the bull camp at there is no classic bottoming formation in place, i.e no double bottom, inverted head and shoulders, 3 on the line and so fourth.  It is fairly rare to get an extended rally on a v bottom formation.

It is certainly possible for soybeans to continue to push higher in the near term but we are now quickly approaching strong levels of resistance that soybeans will have to shatter to extend the rally and change the long term trend.  Strong exports will help if sales continue at higher prices.  However as prices go up at some point global end users like China may decide to wait to make bigger purchases until they have access to cheaper South American soybeans.  This largely depends on good South American weather.  Ultimately with a weak basing formation and strong overhead resistance it may take a big South American weather scare to keep soybeans in bull mode.

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If all goes well in South America the global export market will be flooded with cheaper SA soybeans come March - April.  With corn demand being as poor as it is corn could also need to lower prices to buy some demand.  You have to wonder where corn and wheat would be if it were not for the strength in soybeans and what would happen if the soybeans reverted back to a bear market. 

March Corn Daily chart:

January Soybeans Daily chart:

March 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 above $7.00 and soybeans near $15.00. 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=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

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