Jul 12, 2014
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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.

Corn and Wheat Finally get a Bounce, Soybeans Take a Break

Mar 12, 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.   

Last Friday's USDA report has come and gone but it's effects are still lingering.  The USDA sees a larger then expected soybean crop coming out of South America and therefore larger then expected world stocks.  This has weighed on soybeans in the last few trading days while corn and wheat have done their best to break out of bear trends.  The USDA report, although neutral to bearish for corn and wheat, was not as bad as some had feared.

The corn market has been the leader of the strength and has given wheat new life in the process.  The USDA increased domestic feed demand and that has fostered thoughts/concerns of smaller then expected stocks numbers on the upcoming Quarterly Grain Stocks report due on March 28.  This is where the conversation gets interesting.  If we look at old crop corn prices and then look at wheat prices for the same months we can see that wheat is actually within 10-15 cents of corn through August, and in the case of the nearby May contract wheat is cheaper.

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The relationship of old crop corn to wheat might mean that many operations could be switching to the higher protein, yet more affordable wheat.  This very well could lead to a larger then expected stocks number for corn and a smaller then expected stocks number for wheat.  Now, it is unreasonable to think that wheat can take all or even the bulk of feed demand from corn because cheep wheat is not available in all areas and the switch to wheat may not be logistically feasible for all operations but there certainly should be some switching going on at these prices.  The other possibility out there is that ethanol plants could be switching to using wheat as a feed stock.  This would be closer to how ethanol is produced in Europe and we have heard some reports of Chinese ethanol plants making the switch last summer, but I personally do not think this would be a large scale event here in the US.  There is too much that goes into making this change and the traditional corn - wheat price relationship will likely be in place once we harvest corn.  But, it is interesting to note how demand can be a fickle thing.

Overall corn and wheat were due for a bounce, but I am a little skeptical about the reasons we are pinning it on.  It seems to me that the re is a lot of bullish enthusiasm about the Quarterly Grain Stocks report all of the sudden.  Yes, the USDA upped feed demand again, but did anybody catch the increase in imports?  To me this was the bigger deal on this report.  If the USDA is expecting corn imports and they are starting to add to the balance sheet now it could be just the tip of the iceberg and they are just easing us into it.  Increasing feed demand has been going on now for a few months, so what if this is just the first round of increasing exports?

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I don't intend to sound overly bearish and I am not trying to scare anybody.  Really I am embracing this rally and hope to sell higher priced grain.  I am just taking it with a grain of salt because I remember how bearish everyone was a week ago and I do not feel that the outlook has changed dramatically.  I worry this rally may give some producers false hope when they should have been looking for a bounce to sell.

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 while we have corn near $7.00 and soybeans near $14.00. 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=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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