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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.

Is Corn Showing Signs of Life?

Dec 03, 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.        

March corn set new contract lows to start the week, but was unable to extend losses and has now bounced back to post a somewhat rare close over the 9-day moving average.  What is more is that there is a case to be made that corn may now have a near term double bottom in place.  While it seems unlikely that corn is going to transition into a strong bull market is it possible that the lows may be in for now?  

From a technical standpoint the inability of corn to follow through on new lows may be a positive development.  At the time corn was oversold but it was not an extreme case where we would expect to see a corrective bounce.  In fact, the RSI or Relative Strength Index had been much lower in recent history and was only at 38% after 2 weeks of mostly sideways trade.  For sake of comparison the RSI was at 29% last time corn made new contract lows on November 18th.  This suggests that this bounce off of lows might be more then just a technical corrective bounce.  There is also a chance that corn now has a double bottom formation.  The lows from November 19th and December 2nd are within 1 1/2 cents of each other and both times March corn has rebounded well off of the $4.20 level.  Corn now faces the daunting task of closing above the 20-day moving average which has not been done in convincing fashion since late August.  However, if corn can muster and sustain a bit more strength from current levels a healthy amount of short covering may follow.  

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

From a fundamental standpoint corn has little reason to transition to a bull market, but there is also a chance that most of the worst news is behind us for now.  For the last few months there has been talk of a bigger then expected corn crop and bigger then expected ending stocks.  Now that the corn market has had some time to absorb the harvest and the bushels that were sold off the combine producers may begin to hold on tight to remaining stocks.  This could cause basis to increase and could offer support to futures.  Demand has also started to come back at current price levels.  Ethanol production and export sales are much better then this time last year.  Low prices were and still are needed to continue to encourage demand but at this point corn may want to test the upside to see how sensitive demand is to increases in price.  Demand could drop sharply if corn were to rally too far too fast so it is important to temper expectations for higher prices, but corn may want to test its boundaries in the coming weeks.  

 I have argued the bull case for corn in recent articles however the technicals have not been there to support it.  The technical picture could be getting better at this point, but fundamentally corn is still on a bit of shaky ground.  The massive ending stocks that the USDA is currently projecting could inhibit corn from a longer term rally and corn may still need to make new lows at some point in the marketing year to encourage more demand.  For now however, corn could be setting up to see how higher prices effect exports, ethanol and feed demand.  

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.     

March Corn Daily chart:

January Soybeans Daily chart:

March 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

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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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