Jul 30, 2014
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March 2014 Archive for 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.

What to Expect for the Grain Stocks Report

Mar 27, 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.     

On Monday the USDA will release the March 31st Quarterly Grain Stocks and Prospective plantings report.  Last year this same report was a massive surprise and sent grain markets reeling. The impact of this report last year was profound and set the tone for months to come.  The impact of this report this year is yet to be determined, but it could be nearly as important as last year.  Let's take a closer look at grain stocks for corn and soybeans.  

Soybeans - Grain stocks is a very important number for old crop soybeans and we could argue that old crop soybeans have significant influence over the grain complex as a whole.  The sharp rally in old crop soybeans is based on the idea that we will have very tight stocks this year, maybe even tighter then last year.  Concerns of running out of soybeans this year sparked more then a $2 rally off lows.  But are stocks really as tight as the market perceives and is there still need for price rationing to cut demand?  This report will go a long way to answering this question.  If stocks are tighter then expected it could cause a sharp price rationing rally in soybeans.  If stocks are not as tight as feared it may take much of the bullish story away from soybeans and cause prices to fall.  

From our point of view it seems likely that soybean stocks could exceed expectations.  The average trade guess for soybean stocks is 987 million bushels compared to 998 million bushels last year.  So, the trade is looking for soybean stocks to be slightly tighter than last year.  However, it certainly feels different this year then it did last year.  For the most part everyone we are talking to, commercials and producers alike, either have soybeans or can easily get soybeans.  Last year soybeans were much harder to find which could suggest that there are more soybeans out there this year.  Interior basis is a good indicator of this.  Last year at this time cash basis bids for soybeans were sharply over futures prices, while this year cash basis bids are over in some places an under in others.  This weaker basis this year could be suggesting that there are more soybeans available this year compared to last year.  

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

Corn - Grain stocks is also a very important number for corn this year, but for different reasons.  Corn does not have the perception of a tight balance sheet like soybeans do.  In fact at one point the market thought that this year we would see the highest corn carry over in recent history.  But, in the last few months the USDA has dramatically increased demand and therefore lowered ending stocks numbers to more normal levels.  As of the March USDA WASDE report they are estimating a 2.214 billion bushel increase in corn demand this year.  This has allowed corn to bounce off of lows and set new highs for the year.  This stocks report is important because we will get to see if the stronger demand and lower ending stocks numbers the USDA is estimating are justified.  If stocks are lower then expectations it could mean that demand is even stronger and that corn can support higher prices.  If stocks come in lower it could mean that higher prices are hurting demand and adding bushels back on the balance sheet.  

It is very difficult to try to guess corn stocks this year, for two main reasons.  For one, feed demand is a big question.  Currently the USDA is looking for a 965 million bushel increase in feed from year to year.  This is a huge increase and while there are certainly some factors that suggest a higher feed number there is still an issue with animal numbers.  A cold winter, dryness in the SW Plains, higher weights and a shift back to corn from wheat for feed do indicate that feed demand is larger then last year.  However, our cattle on feed herd is 1% lower then last year and the PED virus has taken an estimated 4-6 million hogs out of the market.  So, feed demand is higher this year, but does it justify an almost 1 billion bushel increase?  From what we can see the USDA may be 220-280 million bushels high on feed demand unless they are using this number to account for a miscalculation made in the past.  

The other issue we see with this Quarterly grain stocks report is where grain is being stored and how it is being reported.  A large portion of last years crop is currently being held in on farm storage.  Because of this it creates a tricky situation for the USDA.  Typically the USDA uses phone surveys to get an idea of on farm storage, but some producers are not always forthcoming with the full extent of grain kept on farm.  Honestly, I don't like the government knowing exactly what I have either.  But, this creates a problem for the USDA because this year they could end up with a sharply lower, and inaccurate number.  In fact this could offer some insight into where we found an extra 400 million bushels on this report last year.  It could be that there was significantly more corn being stored on farm going into the drought and rally to record high prices and guys really did empty out the bins as prices started to come down.  This could account for at least some of the found bushels.  

So, this is going to be a very interesting and very important report on Monday.  It may not have as big of a surprise as last year because the range of guesses is very, very wide.  None the less this report will have a huge impact on the direction of grains going forward.  And it really is anyone's guess.  

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up here: http://www.zaner.com/offers/?page=17  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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.

How Strong is Feed Demand for Corn?

Mar 25, 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.     

Happy National Ag Day!  We should take a moment to celebrate such a vital part of the American economy and culture.  Maybe it should be National Ag Week.  

As we get ready for what could be one of the biggest reports of the year for grains we wanted to look at a key component of the corn balance sheet.  In the last 6 months the USDA has sharply increased corn demand which has lowered ending stock estimates dramatically.  One of the key increases in demand that the USDA sees is feed demand, but is this large increase justified?  

Compared to last year the USDA sees a 965 million bushel increase in feed demand.  In large part this is due to lower con prices and an abundant corn supply.  At the same time the USDA is expecting a year over year decrease in wheat demand for feed and residual of 138 million bushels. This alone accounts for some of the increase in corn demand for feed and is very likely accurate considering the price relationship of corn and wheat.  Last year when corn stocks were tight and prices were high it made sense to feed more wheat and this year the shift should be back to corn.  At the high end this could account for an additional 150-250 million bushels of corn demand over last year.  

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

Other factors contribute to a higher corn demand for feed as well.  It has been an especially harsh winter and this means we need to feed more to keep weight on animals.  And, average animal weights are higher then last years so there is more corn being fed.  There is also a dryness issue in the South Western plains and this also increases corn demand for feed as there is less usable pasture.  So, both of these factors do increase corn demand for feed.  

One thing that has not changed much from last year to the current year is the number of animals on feed.  Last Friday's USDA Cattle on Feed report showed that as of March 1st 2013 we had 10.8 million head of cattle on feed on feedlots of 1,000 or more head.  This is 1 percent below the March 1st number from last year and near the lowest level of cattle on feed since the USDA started keeping track in 1996.  There is also the PED virus that at this point has taken and estimated 5-6 million hogs out of the market.  

So, lower priced corn, a shift from wheat to corn, higher animal weights and adverse weather conditions have certainly contributed to the increase in corn demand for feed this year but, is it enough to account for a 965 million bushel increase from year to year?  The low level of cattle on feed and the PED virus in the hogs could be suggesting that the USDA is vastly overstating feed demand for corn.  

However, there has been speculation out there that the USDA is using this high feed number to compensate for some miscalculations of corn stocks in the past.  This may or may not be true, but next Monday on the USDA March 31st Quarterly Grain Stocks and Perspective Plantings report we will see where we stand with corn stocks going forward.  If the USDA is overestimating feed demand and they are not accounting for previous miscalculations then there could be a possibility that corn stocks come in higher then projections.  

Either way this March 31st USDA Stocks and Acreage report is very important and will set the tone in grains for months to come.  You can sign up for our morning newsletter if you would like to see Zaner Ag Hedge's report estimates.  We are one of the few companies that is polled by the big media outlets, so you will see us there as well.  

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up here: http://www.zaner.com/offers/?page=17  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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.

Why are We Not Letting China Cancel Soybeans?

Mar 20, 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.     

Soybeans have rallied over the last 2 months due to a market perception that the US is going to run out of soybeans this year.  Strong export sales, specifically to China have largely been behind these fears.  If this were the case however, why are commercials not allowing China to cancel US soybean shipments?  

China has been a big buyer of US and South American soybeans in the last few months.  They seemed to have been overbooking their needs in order to hedge against delays in getting the South American crop to port and shipped out figuring that if there were no issues they could just cancel.  No such delays occurred so they went to cancel some of the US soybean contracts only to find that commercials would not let them out of their contracts.  So, now China is scrambling to cancel South American cargoes as well as find new and interesting ways to get out of contracts with the US.  The question is, if China wants to cancel and US ending stocks are so tight then why not let them cancel?  

One reason may be related to issues we have had with China regarding another row crop - corn.  Earlier this year China started to reject cargoes of US corn based on finding trace amounts of a non-approved GMO variety.  This particular GMO has been approved by all other major exporters in the world and China did not readily offer a reason for why they did not approve it.  So, through the eyes of US commercial grain dealers this looked like another way for China to get out of taking corn cargoes that they had purchased at higher prices.  So, it is conceivable that commercial grain dealers are now using this soybean situation to get some sort of payback, or at the very least to send the message - Hey China, you have to play by the rules as well.  

The more likely and maybe more important reason may be that commercial grain dealers are concerned that if they do let China cancel they may not be able to sell those soybeans at the same or better prices.  There seems to be a strong understanding in the commercial world that the global soybean stocks could be at a record high this year.  So commercials may not be willing to allow China to cancel soybean cargoes because they are afraid of lower prices.  

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

Furthermore, the market has a perception that the US is running out of soybeans.  In fact, looking at some early trade guesses for the upcoming March 31st USDA Quarterly Grain Stocks and Planted Acreage report it shows that many analysts are looking for stocks to be 20-30 million bushels lower than this time last year.  But, in conversations with many various industry contacts we are hearing a much different story.  This time last year it was difficult to find large quantities of soybeans that were unallocated.

This year feels completely different.  Soybeans seem to be around and available.  Another interesting thing is that we hear that soybean stocks in the Pacific Northwest are good, yet the vast majority of exports inspected for shipment are coming from the gulf or the Eastern Seaboard.  Is it possible that we are taking South American soybeans, maybe even some of the same shipments China canceled, and shipping them out to China?  Or was soybean production better then what the USDA reported last year?  Would this mean that this very tight US balance sheet that the market is perceiving is actually not so?  

The March 31st stocks report will shed some light on this situation.  It could be the case that the USDA underestimated the soybean crop last year.  And, Actually this time I wouldn't go off on a rant on how the USDA needs to get their act together because they actually do have an excuse this time - due to government shut downs they were down during a time when then needed to be in the fields gathering yield data.  So if this were the case it would be reflected on this stocks report.  The other possibility, soybean imports, may not show up on this stocks report on a large scale.  This stocks report is as of March 1st and the majority of imports would have likely occurred later.  So, this may not show up until the next stocks report.  

Either way this March 31st USDA Stocks and Acreage report is very important and will set the tone in grains for months to come.  You can sign up for our morning newsletter if you would like to see Zaner Ag Hedge's report estimates.  We are one of the few companies that is polled by the big media outlets, so you will see us there as well.  

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up here: http://www.zaner.com/offers/?page=17  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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.

Are Soybeans Headed for New Highs?

Mar 18, 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.     

After almost a $1.00 pull back, May Soybeans have now bounced back to within 42 cents of the highs.  Fund and technical buying have helped the soybeans to recover, but is this the start of a new leg higher in this bull move?  Or is this a continuation of a topping formation?  

Since the end of January old crop soybeans have rallied over $2.00 from the lows.  This strength has come from fund buying and concerns about tight stocks.  Soybean exports are on a record pace and the fear is that the US could be left with a historically tight ending stocks figure if these strong exports continue.  On top of this funds, which are largely technically driven, have jumped into the market and helped add fuel to the rally.  However, last week the USDA reported only a 5 million bushel reduction in the projected carry over and soybeans fell sharply from the highs.  

The fundamental picture for soybeans is a highly contested matter at the moment.  On one side you have the bull camp who feel that even with cancellations from China export demand needs to be increased dramatically which would leave ending stocks at historically low levels and below what the USDA considers "pipeline supplies".  On the other side you have the bear camp that will argue that a projected record world carry over should keep global soybean prices in check and that the US could even import a large amount of soybeans if need be.  

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

This debate continues to rage on, but until last week the bull camp was firmly in the drivers seat.  Now, things are a bit more two sided.  With South America moving along with harvest and shipping out soybeans the question is will we now see more Chinese cancellations or imports of South American soybeans?  We heard early last week that China had canceled 30-40 cargoes of South American soybeans and that at least some of them were on there way to the US.  Without any import reporting system in place it is hard to tell to what extent we are actually seeing South American imports, but the stories are certainly out there.  

From a technical perspective soybeans, for the time being, have a V top formation.  This means that we went from a bull run to a sell off in a matter of 2 trading days.  This sort of sharp reversal is rarely a long term top or bottom in the grains.  So, when soybeans could not extent the break lower the next logical technical move would be to go an re-test the previous highs.  It seems May soybeans are in the process of doing just that.  

The question really is - can soybeans break through to new highs and extend the rally, or is this just part of a larger, longer term topping formation.  Certainly the extent of fund buying will have a hand in determining this.  But funds are not usually the ones to break new highs.  This usually comes from bullish fundamental news.  Many funds will only buy based on technical indicators, but will stop short of key levels or resistance and leave it to the market to determine if new highs are justified or not.  It will be very interesting to see if soybeans can do it or not considering that for the moment fundamentals may not be as bullish as they were a few weeks ago.  

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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.

Is Corn Demand Slipping at Higher Price Levels?

Mar 13, 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.     

Since January corn has rallied over 80 cents off of lows.  Prices have strengthened on thoughts of growing demand chipping away at the large ending stocks figure.  The USDA has indicated that ethanol, feed and export demand for corn has been increasing while corn prices were down in the low $4.00 range.  But, now that corn is trading at higher levels how is effecting this newly re energized demand?  

A few months ago the trade widely believed that we could see a corn ending stocks figure above 2 billion bushels.  This would have been the largest corn carry over in recent history and would have been a burdening supply of corn.  This sent the corn market on a mission to "buy back" demand with lower prices.  According to the USDA lower prices have been successful in growing demand.  In November the USDA increased feed demand 100 million bushels and exports by 175 million.  In December the USDA increased ethanol and export demand by 50 million bushels each.  In January the USDA increased feed demand by 100 million bushels and ethanol demand by 50 million.  In February the USDA increased export demand by 150 million bushels.  In March the USDA increased export demand by 25 million bushels.  Over the course of the last 5 months the USDA has increased demand by 650 million bushels.  

In fact, at this point the USDA's estimated total usage of corn is 2.214 billion bushels above last year!  This is certainly a reflection of how record prices slowed demand last year as well as a reflection of how low $4.00 has encouraged demand this year.  But, now that corn has rallied over 80 cents off of lows how will this effect this 650 million bushels the USDA has added in the last five months and the 2.214 billion increase over last year?  

As we have seen in the last few years corn demand is extremely price sensitive in this current global economic set up.  This is called price elasticity of demand.  In other words, lower prices have a profound effect on increasing demand just as higher prices have a profound effect on decreasing demand.  

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

Knowing that corn demand is so sensitive to price the concern now is that higher prices will start rationing some of this demand and start adding bushels back on to the balance sheet.  We are now starting to see the early signs of this.  The weekly ethanol report showed that last week corn used for ethanol fell almost 5 million bushels and was 6.5 million bushels below the weekly average needed to hit the current USDA estimate.  Export sales suffered this week as well.  Thursday's export sales report showed that corn sales were 26.9 million bushels compared to 59.8 million last week.  This is a 32.9 million bushel decrease and is sharply lower then the previous 4 week average.  

Feed demand is a big question.  The USDA is currently estimating a 965 million bushel increase in feed demand from last year.  To an extent an increase makes sense as a cold winter has increased the need for feed and cattle weights are higher.  However, the cattle heard continues to hover near the lowest level since reporting started in 1996.  This may not justify such a large increase in feed, and cattlemen may be very price sensitive after years of tight or negative profit margins.  This will become more clear on the March 31st quarterly grain stocks report.  

The bottom line is that corn has had reason to rally with the USDA adding 650 million bushels of demand and cutting ending stocks to more normal levels. The worst news in corn is most likely behind us.  Gone is the talk of a 2+ billion bushel carry over.  But, this increase in demand was based on lower prices and with corn demand being so price sensitive it may be the case that an 80 cent rally off lows could begin to slow demand and add bushels back to the balance sheet.  Corn is currently in the process of testing its limits and exploring how price sensitive this new demand is.  We are now starting to see some signs that demand could be slowing at current levels.  If this is the case corn prices may need to come back down to keep demand strong.  

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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.

Wheat Closes at New Highs for the Year

Mar 11, 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.     

Wheat prices were sharply higher Tuesday on weather concerns and more talk about unrest in the Ukraine.  Prices had fallen off the highs by the close but still managed to post impressive gains and a new high close for the year.  

A cold snap following a brief warm up is causing concerns about damage to wheat crops.  The US Drought Monitor Index is showing an increase in dryness in the plains and particularly the southern plains.  Cold weather mid-week is now threatening to cause some damage in dry areas.  However, crop ratings are mixed with Oklahoma ratings dropping but Texas and Kansas ratings improving.  Wheat will now trade a weather/Ukraine market going forward.  

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

News that the Ukraine is off to a slow start to spring planting added support as the market is very sensitive to any Ukrainian news.  As of March 7th 46,600 hectares have been planted compared to 300,000 this time last year.  It is still early in the planting season, but the market is sensitive to the Ukraine situation and investors are quick to look for the "Ukraine trade" which wheat has been a big focus of.  This news comes after the Ukrainian Ag ministry had said earlier that spring grain planting had begun on time and the political uncertainty had not had an effect.  This may still prove to be true, but uncertainty and fear is high.   

Domestically the USDA is projecting the tightest ending stocks in the last three years.  While a 558 million bushel ending stocks number is not a tight enough balance sheet to demand higher prices to price ration demand it does put more pressure on producing a good crop.  This means that weather will be followed closely and any threats will be met with strength in prices.  On a global scale wheat ending stocks are on the larger end.  This could keep a lid on prices as the US will quickly loose export business on higher prices and could end up importing on a larger scale if the situation is bad enough.  

For now it seems like investors or funds that would not typically trade wheat are buying wheat to get access to the turmoil in the Ukraine.   

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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.

Is the US Importing South American Soybeans?

Mar 06, 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.   
 
It seems likely that the USDA will have to increase export demand for soybeans on Monday's WASDE report.  To keep ending stocks near pipeline supplies they will also likely increase US imports of soybeans as well.  The question is where do they come up with this number as there is no reported import data.
 
Record US export sales are threatening to run the US out of soybeans this year and the market has reacted with higher prices in an attempt to price ration demand.  However, it is likely that the USDA will still show a record world carry over number in soybeans despite the possibility of a slight reduction in South American production.  This would suggest that US imports of South American soybeans on a bigger scale then seen in the past are possible or even likely.  And, the USDA has acknowledged this by increasing imports on the last two reports.  But, where are they getting this data?
 
Currently we talk about US exports twice a week with Monday's export inspections report and Thursday's export sales reports.  But, there is not currently a reporting system for US imports, at least not one that is made public.  In years past this may not have been a big deal as the US has not been a major importer.  However, things may be different this year and could be in years to come.  It may be time to set up a reporting system for imports similar to what we have in place for exports.
 
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
 
To some extent it is an unbalanced view of the market, especially this year when big South American imports are a real possibility.  We see big export numbers and it seems like the US will run out of soybeans.  But with a potentially record world carry over the global situation does not seem nearly as dire as the domestic situation.  And, if it is true that there will be so many soybeans in the world this year it seems likely that the US will import more then in years past, especially if domestic prices stay elevated.  We have even heard talk from industry men that there already have been more South American soybeans imported to the US then the current USDA projection.  So again, how does the USDA know where we actually stand?  Is there a system in place for accounting for imports or is it simply a best guess scenario?
 
The lack of a public reporting system for imports may actually be a boon for producers too.  As we start putting together our planting intentions this year it is tempting to make a switch to soybeans based on the recent strength.  However, if there are or will be imports on a larger scale then the carry over situation may not be nearly as tight as the market is currently perceiving and could lead to a sharp drop in prices when this becomes known to the market.
 
So, if we are actually going to have bigger South American imports to the US this year when will the market see this?  That is a good question because we are kind of left in the dark when it comes to imports, but we will see what the USDA has to say on the matter on Monday's WASDE report.  However, we may not know the full extent until later.  The March 31st Quarterly Grain stocks report could show higher stocks then expected (similar to corn last year) and this would likely be a reflection of imports.  But we may not actually get the full picture until the June 30th grain stocks report.  If this is the case it could potentially set the market up for a big surprise in the middle of the growing season.
 
It will certainly be interesting to see how the USDA handles the balance sheet on Monday, and it sets us up for some potentially interesting reports for months to come.  At this point it may be easier and more beneficial to the market to set up an import reporting system.  At least that way we would get to see both sides of the story.
 
Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you should be receiving it.  Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17
 
Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.   
 
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 tseifried@zaner.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.

What is the Worst-Case Ukraine Scenario for the Grains?

Mar 04, 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.        

The last few days have been dominated by talk of unrest in the Ukraine and the potential global issues it may bring going forward.  One of these issues could potentially be a disruption of Ukraine's grain export business.  So far this has not been an issue, but we wanted to take a look at the worst-case scenario going forward.  

First of all it is important to note that to this point there has been no disruption to Ukrainian grain export business.  Two major global grain companies have said that they were experiencing business as usual in the Ukraine.  Also, farmers seem to be preparing normally for the coming growing season. But, with the situation ongoing and political tempers heating up the question is what would happen if the Ukraine were no longer able to or interested in exporting corn and wheat.  

The Ukraine is a big player in the global wheat and corn markets with the USDA currently estimating that the Ukraine will account for roughly 16.2% of global corn exports and 6.3% of wheat.  For perspective, this would represent just under half of Australia's wheat exports and a little less then Brazil's corn exports.  If the Ukraine were unable to continue to export grain this would effect the corn and wheat markets dramatically.  But, how dramatically?  

From a worst-case scenario point of view (which is what we are going for here) let us assume 2 things: 1) that the Ukraine has not exported any 2013/2014 corn or wheat to date, and 2) that any lost exports from the Ukraine would be picked up by the US.  Now, neither of these things would be close to the reality but for lets just assume they were for now.  If this were the case it would mean that the US would have to pick up the 10 mmt (million metric tons) of wheat and the 18.5 mmt of corn.  This translates into 367.4 million bushels of wheat and 728.3 million bushels of corn.  Using the current USDA carry over numbers this would leave the US with roughly 191 million bushels of wheat and 753 million bushels of corn.  This would be a very tight balance sheet for wheat, but for corn it wouldn't be too far from the carry over from last year.  

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

Now again, neither of the two assumptions are true.  It is not the case that the Ukraine has not exported any 2013/2014 grain, and it is also not the case that all of the lost exports would be picked up by the US.  But, there are other factors that would need to be considered as well.  If Ukrainian grain exports would shut down it would cause higher world prices which would likely curb some global demand.  Also, if it were the case that the US and Russia were to get into it over the matter then some US exports to Russia and maybe other countries could suffer as well.  

The better way of looking at it may be to subtract the Ukrainian export figure from the USDA's projected global ending stock figure.  Basically this would mean that the lost exports from the Ukraine would get spread out a bit which could keep prices more normal and may not cut into global demand.  If we looked at it this way we would have a 173.73 mmt carry over of wheat and a 138.8 mmt carry over of corn using the current USDA estimates.  Compared to the last three years this would represent a slightly smaller world carry over in wheat then average and still a larger world carry over in corn.  This may not be the best way of looking at it either because countries that are not normally exporters may not jump into the mix and logistics can be affected but the reality would fall somewhere between these two scenarios, most likely closer to the second.  

Longer term issues could arise as well from an extended engagement.  Potentially farmers could slow or stop plantings.  Currency and governmental issues could make Ukrainian exports unavailable.  Port damage could occur if there were a conflict.  But, at this point it seems unlikely that this will escalate to a major conflict.  

Overall the Ukrainian situation is bullish for the grains, and in its worse case scenario has the potential to send grain prices sharply higher.  Certainly no one knows what the future will bring but for now Ukrainian exports have not been effected.  The markets will continue to monitor this situation closely.  In particular it seems that funds have been aggressive buyers of anything that could be effected by the Ukraine.  If this situation passes without much consequence these funds could want to exit these positions.  So, stay tuned.  

Sign up for our newly renovated Morning Ag Hedge newsletter!  If you have signed up previously there is no need to sign up again, you will see it in you inbox shortly.  Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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 tseifried@zaner.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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