Jul 10, 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.

Grains Cool Off in Front of USDA

Jul 10, 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.   

Grains pulled off their highs today as the trade braced itself for tomorrow's highly anticipated USDA crop production and supply and demand report.  Crop conditions declined again last week as the USDA showed us a 8% decline for corn and a 5% decline for soybeans.  Both corn and soybeans are now 40% good-excellent.  Maybe some traders were disappointed to see corn and beans holding over 40%.  The lower trade today is more likely due to profit taking in front of what could be a wild report day.

There is no doubt that the drought or near drought like conditions and scorching hot temps in many areas has caused a decline in yield potential.  The question is how much.  The USDA will weigh in on the matter tomorrow.  I have a feeling that the USDA might hold back on a major (15-20 BPA) reduction in average yield until later reports.  From what we have seen from the USDA in the past it seems that they like to stair step into and out of things and we may not get as big of a reduction in yields that the market has currently factored in.  So, this report, along with chances for rain next week could trigger a bit of a correction.

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

Furthermore, I also wonder how low the USDA will actually go when it comes to final yield this year.  We have seen them give us some head scratching numbers in the past and I do wonder if this might be a similar situation to some extent.  Time will tell.  However, I must say that in the long run ultra high grain prices this year is not a good thing for the years to follow.  We have to wonder how much demand we will destroy if corn would go to $8.00+ and beans to $17.00+.  Ethanol and bio diesel plants would sure struggle with profit margins if crude oil remains at comparatively low prices, and export demand may struggle with a stronger US dollar.

So could the USDA insist on using a higher production number then the reality in order to protect demand?  I can't say for sure that they do or do not do such things, but if they did their thought process might be to smooth out the curve instead of hitting extreme highs on supply concerns followed by sharp declines based on demand destruction...   I prefer to live in a world where manipulations like this do not exist, but if at the end of the year we are all wondering how the USDA could hold onto a higher production number then what seems realistic, well then I guess we will know why.

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