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.
Should Corn be Fighting Harder for Acres?
Apr 17, 2014
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.
According to the USDA's Prospective Planting report they expect corn acreage to drop 4% to 91.7 million acres and to the lowest level since 2010. At the same time the USDA expects soybean acreage up 6% to a record high 81.5 million acres. Planting intentions are up or unchanged in all States except Missouri and Oklahoma. However, with the USDA estimating a 2.339 billion bushel increase in corn demand from last year to this year and a projection for a record world carry over for soybeans this year should corn prices be making more of a push to entice producers to plant more acres?
Since the USDA released their Prospective Plantings report on March 31st December corn is up 9 1/2 cents while November soybeans are up 52 cents. So, if anything soybeans may be adding to the USDA's record plantings estimate and this could be coming at the expense of corn. Worse yet, price may not be the biggest factor in determining acreage this year. Weather will have a big say in the acreage mix. Wet and cold weather could delay plantings and this could mean that producers may miss the window of opportunity to get all of their intended corn acreage planted and chose to plant more soybeans instead. Also, a historically weak corn basis in the Northern Midwest is pushing producers toward soybeans regardless of price. North Dakota currently has a negative 85 cent basis for corn due to rail competition from Bakken oil and is also not surprisingly where the USDA sees the biggest shift in acreage from corn to soybeans - almost 1 million acres.
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
So, while price may not be the biggest determining factor in the acreage mix in some areas shouldn't corn prices be strengthening in relation to soybeans to try to buy acres where it can? This would certainly make sense. Corn demand has come roaring back to life since we saw record prices in 2012 and with lower acreage this year it may take a near perfect growing season to keep up with demand. Soybeans on the other hand have a much different story. There are a lot of soybeans in the world today after a monster South American crop. And, record acreage here in the US could translate in to one of the biggest soybean stocks in years if we have anywhere near normal weather this growing season. On top of that Chinese demand seems to be slowing as of late and the PED virus in hogs does not seem to be going away.
In the last few years global soybean demand has been growing while global production has had issues. In the mean time corn demand has been fairly elastic relative to price fluctuations and this year corn production has rebounded significantly. So the soybean market has been on a mission to increase global production. However, markets have a tendency to over achieve its goals and may very well be in the process of "buying" more soybean production then needed. If record acreage does get planted in the US (which looks likely) and we do have an ok growing season there could be a significant over supply in soybeans next year and prices could need to fall to buy more demand. On the other hand, the corn market has already grown it's demand base with lower prices and a near perfect growing season will be needed to satisfy demand. So, if you are making the switch to plant more soybeans this year it may be very important to look at new crop hedging strategies to lock in current price levels.
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May Corn Daily chart:
May Soybeans Daily chart:
May 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 firstname.lastname@example.org
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.