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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.

USDA Sends Grains on a Wild Ride

Jul 11, 2012

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.   

 

Corn and soybeans had a huge range today ending with key reversals.  In a surprise move the USDA cut corn yield forecasts by 20 bushels an acre.  This was well below the range of trade guesses as most analysts expected the USDA to slowly lower projections.  Soybean yields also came in well below expectations.  Ending stocks numbers came in slightly below expectations as well and the initial reaction to this report was bullish.  However, when I saw the numbers my first thought was "oh my, this is really bearish".

I can understand that a vast majority of speculative traders do not really understand what these numbers represent and are just comparing the actual numbers to the trade estimates.  And if that is all you are going by I can see how this report was interpreted as bullish at first.  Yield numbers were lower and ending stocks were lower so that's bullish right?  Not in my book, not in this case.

Options on Beans for People Who Don`t Know Beans About Options: http://www.zaner.com/offers/?page=8&ap=tseifrie

I was a little shocked that the USDA was so aggressive in the changes they made, not just in lowering yield numbers but also the sharp decline in demand.  The yield numbers actually came out closer to what the reality is rather then a watered down "step down" approach that most analysts (myself included) thought the USDA was going to take.  And, in an even bigger surprise they did the same with demand.  The bottom line is that we still have almost a 1.2 Billion bushel carry over at a 146 yield!

The USDA made a statement by doing this saying that $7.00 plus corn and $15.00 plus soybeans will be met with strong rationing of demand.  I certainly agree with this notion as ethanol and bio fuels production does not make competitive sense with $7.00 corn and $85 dollar crude, and exports get very expensive with a higher US dollar.  In 2008 when crude went to over $140 a barrel $7.00 corn still offered ethanol producers some profit margin as high crude prices softened the blow of high corn and therefore ethanol prices.  This is not the case this year.  On another front exports will also suffer from high prices.  Again going back to 2008 when the US dollar was at 72.00 export demand stayed pretty strong even with high grain prices, but at the time foreign currencies got more bang for their buck and therefore softened the blow of high priced grain.  Again, this is not the case this year.

In the end, this weather market is not over.  And, if we do not get any rain in the next 10 days we will likely need to lower yield forecasts again which will call for corn and soybeans to further price ration demand.  However, if we do get timely rains I do feel that the USDA is using a pretty accurate number at a 146 corn yield and the soybean yield number could even improve.  If this is the case then a 1.2 billion bushel carry over in corn and a 130 million carry over in soybeans do not justify the prices we have on the board today and we could see the need to price grain back into a stronger demand climate.

If the rains for next week that we currently see in the forecasts do materialize then the key reversals we saw today could be the beginning of a topping formation and today's highs may hold for some time.  All eyes on the skies.

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

With high volatility in a weather market, option strategies may be a good tool for hedgers and specs alike.

December Corn Daily chart:

November Soybeans 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 new crop corn above $7.00 and new crop soybeans above $15.00. 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 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?rid=Seifried

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. 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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COMMENTS (1 Comments)

JR Farms - IL
Maybe this is a stairstep down, the part of IL where i call home will be lucky to average 50BPA. 50% of the corn is a big 0 right now. If we get moisture by fall there will be a large increase in wheat acres. No need for fertilizer corn didnt use any of it.

9:20 PM Jul 11th
 

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