The Ted Spread
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.
Grain Report Friday Round 2
Nov 14, 2013
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Last Friday gave us the first USDA Crop Production & WASDE report we had seen in 2 months. This Friday we have a number of smaller reports that will shed insight into the changes the USDA made last Friday. Export sales, NOPA crush and a private estimate of next year's crop production should make for an interesting day.
Export sales of soybeans have been a very hot topic of late and a big market mover. Last Friday the USDA increased US soybean exports by 80 million bushels and since then many analysis have been suggesting that the USDA will have to continue to increase exports and decrease ending stocks. It seems that due to strong export sales many in the trade are expecting a 30 million bushel increase in exports above and beyond the 80 million bushels the USDA added in the November report. We think that at this point the USDA will wait and watch shipments to see if they in fact need to increase export demand.
The trade is expecting another big export sales number for soybeans tomorrow and we tend to agree. Many times after a 70+ cent rally global buyers will get nervous about prices going higher and make purchases. So, we may have to wait till next week to see effective the 70+ cent rally in soybeans has been in rationing export demand. We suspect it may be more then expected as demand rationing has been easier in recent history as global and domestic demand seems to be more inelastic then in years past. We saw this last year as aggressive price rationing occurred at much lower prices then what many analysts had expected. Not to mention south America's weather looks pretty favorable at the moment.
NOPA crush numbers may be the most interesting numbers we see tomorrow. We will be looking at the October crush numbers so, this will represent only the second month of this new marketing year. September crush numbers came in slightly above expectations at 108.7 million bushels. For October the trade on average is looking for 154.3 million bushels. This is about a 46 million bushel increase from one month to the next. One reason given for this huge jump is availability of soybeans as the harvest progressed. This is certainly the case and we would expect a sizable jump in crush, but 46 million is a lot from one month to the next. Crush margins are good and soybean meal demand appears strong so it is certainly possible, but if the month to month increase is not as big as expected NOPA crush could be the wet blanket tomorrow.
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A well followed private analyst is expected to share their estimates for next year's crop production. Now, it's early as we are hoping to finish up this years harvest sometime soon, but it will be interesting to see what some analysts are looking for next year. Next week we will also be putting out our first shot at next year's production. Here is the thing, it is really just a shot in the dark at the moment. Certainly we have no idea what weather will look like next year. But even if we assume normal weather there is the big question of acreage. If you were to take the prices we see on the board right now you have soybeans gaining acres in a big, big way. This may end up being the case to some extent, but for there to be a massive shift on a national scale it is going to take a disaster in South America.
South American weather and acreage will take center stage toward the end of the year into the beginning of next year and then we will have a much better idea of the acreage situation. The positive here is that for now the price relationship of corn and soybeans may keep analysts from projecting massive ending stock numbers for corn because the board is asking for a major acreage shift. This could certainly change as we get to know more about South America's production and get more into the acreage battle. The bottom line is that while production estimates for next year are interesting to look at, a lot will change between now and when we get back into the fields to plant next year's crop.
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December Corn Daily chart:
January Soybeans Daily chart:
December 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 email@example.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.