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.
The Year-Long Weather Market
Apr 23, 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.
It is April, and grains are firmly entrenched in a weather market. Right now grains are transitioning from the bullish idea of lengthy planting delays to bearish thoughts of a warmer, drier forecast allowing for planting opportunities. Is it early to be trading weather so closely? I'll argue that we have been in a weather market since last December.
The dryness in South America two growing seasons ago and the US drought last summer have put a lot of pressure on global grain performance. As such we started watching South American weather like a hawk last December. At the same time we were talking about winter precip in the US in regards to recharging the drought depleted sub soils. So weather has not really taken a back seat for some time.
Now the weather concern is late planting and if some of the northern growing areas will be able to get corn (or anything) planted in time. But this is actually a bigger issue. It now becomes likely that late planting means a late harvest at least for some. This means that, aside from the normal summer weather market, weather will remain a big market factor well into fall. At some point we will be worried about early frost and snow. This also means that current ending stocks may need to be stretched further into the marketing year. This could tighten balance sheets again, but it would seem that any major rally in old crop corn or soybeans would be met with imports from South America. This also means that the September Corn contract will likely take on characteristics of old crop and September Corn options could end up being a great hedge against any new crop sales if we smell a summer rally coming on.
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It seems to me that the markets could be getting a little ahead of themselves with this recent drop due to an improved weather forecast. The fact remains that we still need to get seed in the ground and corn is only 45 planted. Yes, if the current forecast pans out we could catch up quickly, but I would think there should still be some nervousness in the market until the job is at least 50% done. Maybe it will take a change in the forecast to get a bounce, but hey - that's a weather market.
So, the weather market is here and has been here and will be here for a while. When you have major weather events like the ones in the last year it raises the markets sensitivity. This year we should expect the markets to be very sensitive after the drought in the US last year. So buckle up everyone, it could be an interesting spring, summer, fall, ect...
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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 $7.00 and soybeans near $14.00. 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 firstname.lastname@example.org
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.