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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.

Where Were You Last 4th of July?

Jul 02, 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.        

As we sit here making plans for the 4th of July holiday I can not help but think about last year.  A year ago I was getting ready to take the family to the Wisconsin Dells and looking at the stretch of 100+ degree days to come wondering if we would have a chance to be outside at all.  On the drive up I saw a lot of corn and soybeans that seemed to be in dire straights, the way back looked even worse.  We were in the middle of a scorching drought and it showed.  When markets opened again on the 5th corn, wheat and soybeans gaped higher on route to record highs.  You know, its funny how much I remember about last summer, where I was and what I was thinking.  It was a year that I will always remember and think about for the duration of my career, it was that kind of year.  

In so many ways this year is not like last year.  In recent articles I have touched on many of the obvious and some of the more subtle differences.  But as december corn crosses into sub $5.00 territory for the first time since early last spring I am sharply reminded of how quickly things can change.  What we have now is actually similar in some ways to the beginning of last growing season.  We had planted a huge amount of acreage and we were expecting massive ending stocks before the drought took hold.  

This year has certainly had its issues as well.  A wet spring kept planting at a record slow pace.  Late planted corn and soybeans have raised concern about lower yield potentials.  But as we head into the 4th of July Holiday this year we should all take a moment and think about where we are now, where we were last year and where we could be a year form now.  

For the remainder of this growing season it seems that corn, wheat and soybeans have the potential to see lower prices.  The USDA planted acreage number for corn came in much, much bigger then what we had all guessed.  We can argue about it until we are blue in the face, but the fact remains that this is the acreage number that the USDA will use for their balance sheets until after harvest.  That certainly sets us up for some very big ending stocks numbers going forward.   

Yield now becomes the biggest question to determining production, and this may be where the USDA makes up for the much larger then expected planted acreage number.  Remember, the USDA has already lowered their original yield estimate by 1.5 bushels an acre for corn.  This could be a trend and could shrink ending stocks a bit.  And, the smaller then expected quarterly grain stocks number could mean there is more demand out there and could justify higher demand numbers from the USDA which could also shrink ending stocks a bit.    

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However, with corn and soybean conditions in the upper 60% range in the good to excellent category and demand indicators continuing to disappoint is seems impossible for the USDA to give us ending stocks numbers that could be anything but bearish going forward.  Yes, maybe the July report will not be as bearish as our worst fears and we might get a bullish reaction to it but in the end the number will be bearish longer term.  

Producers should be thinking about pricing on bounces from here on out.  Some of the strategies we use allow for some upside potential to capitalize on a rally while still offering a price floor.  Please feel free to give me a call or shoot me an email if you would like to talk about your marketing plan.  The last few years no marketing plan has been a good marketing plan, but this does not seem to be one of those years and the guys who are able to see that may be greatly rewarded.  

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

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 $5.50 and soybeans near $13.00. 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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