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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.

Will Grains Fail at Key Resistance?

Nov 29, 2012

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.   

Grain took a break from the rally off lows today with March corn ending down 5 1/4, January soybeans up 1 3/4 and March wheat down 5 3/4.  Strong (but volatile) outside markets and more rain in Argentina offered support, but poor export sales and technical resistance added pressure.  Corn, soybeans and wheat are all at a bit of a crossroads here as they run up against key support levels.

As per usual this time of year, there is a bit of a lack of grain fundamental news but the news that we do have (other then wet weather in Argentina and dryness in the plains) is mostly bearish.  Export sales were dismal again this morning.  Sales continue to be disappointing and well below what we would expect to see at this time of year.  The US lost out on the Algerian wheat tender with France earning the bid.  Cattle on feed numbers are at the lowest levels since 1996.  Ethanol production is down while stocks are higher.

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Export sales for corn are 45% behind where we were a year ago.  The USDA has balanced in a 25% decline.  So, here we are at the peak of our export season and we are way, way behind where we need to be to even export 75% of what we did last year.  This could translate into another reduction by the USDA for corn used for export.  Wheat is 10% behind same time last year and the USDA is currently expecting a 5% yearly increase.  Soybeans are 29% ahead of last year!  And, the USDA is expecting a 1% decline!  But, and its a huge but, if South America ends up with the monster crop that they are on track for we may not sell a single soybean after April as SA soybeans flood the global market at a $2.00 discount.

The weekly ethanol report showed that production was down 1% from last week and 13.7% from last year while stocks were down 3% from last week but still up 7.6% from last year.  This is showing us that demand for ethanol is lagging and therefore demand for corn for ethanol is as well.  Corn used for ethanol production last week was 84.32 million bushels compared to the 86.64 weekly average needed to reach the current USDA projection.  This has been a trend, in fact since Sep 1st there has only been one week that was solidly higher then the average needed to hit the USDA target, and that was in early September.  If this trend continues, the USDA could need to cut demand for corn used for ethanol by 75-100 million bushels.

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

From a technical perspective corn, wheat and soybeans are all rallying into key chart resistance.  As illustrated on the charts below, corn and wheat face the toughest challenge of getting back up and over the 100-day moving averages.  If corn and wheat fail to break and close over it then this rally off lows could be coming to a close.  If they are able to convincingly close above however we could get a breakout move to the upside.  Honestly, this may spur more export demand for corn then a drop in prices.  Just like producers are reluctant to sell on rallies because they figure they can sell higher tomorrow, end users may need a kick in the behind to pony up and pay for $7.50 plus corn.  There is no better buy trigger then the fear of higher prices.  But, for now I am just not sure if the fundamental picture is bright enough to push these markets up and over key resistance.

Outside markets continue to be a factor.  It seems markets move whenever anybody farts in Washington.  I feel that the fiscal cliff will get resolved and that although markets may embrace that at first glance the hard truth of the matter is that we will have had to give up much too much to make it happen.  Either way the economy gets hurt and in my mind its really just a question of how bad.

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 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 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=Seifried

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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