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.
Why is This Year Different then Last Year for the Grains?
Jun 18, 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 obvious differences from one year to the next are plenty. We could talk about the weather and how last years record planting pace was followed this year by a record slow pace. We could talk about how much rain we have had this year after a major drought last year. We could talk about how demand has fallen in the last 12 months. These are all very important factors to the market and shape the current market climate. But aside from the obvious differences, I have been thinking about a less obvious one and that is trader/analyst mentality.
Around this time last year everyone, and I mean everyone was very bearish. We had an unseasonably warm spring and a had planted crops at a record pace not to mention on huge acreage. We were expecting a huge crop with huge yields on huge acreage. We were expecting over a 2 billion bushel carryover for corn which we had not seen in some time. Then... Well, we all know what happened. I didn't rain in 3 months and crops were tortured by scorching heat.
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The point of this exercise is to highlight that last year the market had been so one sided and in particular so bearish that when the drought set in we all got caught off guard. Yes, some of us sniffed it out a week or two in advance and purchased some calls to protect our short positions but none of us could have known this time last year that we would see record high prices. We were all waiting for it to rain and expected the markets to make new lows. But when a market gets so caught off guard like that it turns into a violent move as stops get hit, new positions are taken and speculators come out of the woodwork to join the party. Doctors and lawyers and even cab drivers read something from wallstreet and then proceed to look for ways to get in on the action.
This year is a different animal. There are very polarized opinions on the markets today. There are arguments over what did and what did not get planted. There are arguments over yield potential of late planted crops in near ideal weather. And, there are arguments over the current demand structure. So much so that we see these arguments play out on the board every day in the form of choppy, two-sided trade. When something happens, and it will, there will not be as many of us caught of guard. And it would take another major weather issue to push prices to new record highs after we saw how quickly and easily demand was rationed last year.
The input for change very well may be the upcoming USDA reports on June 28th. These reports will answer some of the burning questions out there such as acreage and demand for last quarter and will likely set the tone of the markets for months to come. It seems the June 28th reports are becoming some of the most important of the year. But, the market seems to be in a much healthier position coming into this and prepared to take any swings in stride. There will be buyers, there will be sellers and some will get caught off guard and some will say I told you so but this year we are not all leaning on the same fence.
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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 $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 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.