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.
Hey everyone! Its been a while since my last post as I was in Minnesota and The Dakotas looking at crops, visiting with clients and participating in a marketing panel at the Big Iron Farm Show in Fargo, ND. I must say we saw a lot of variation from field to field but overall we were quite impressed with corn and soybeans. A hearty thank you to everyone for the wonderful hospitality. We will be back soon!
Soybeans have sure had a hard time holding a rally since the USDA confirmed a lower yield and lower ending stocks on the September USDA report last Thursday. Even the day after the report soybeans were unable to follow through and ended up giving back much of the gains. Since then soybeans have had a few attempts at a rally in the night session only to find selling pressure in the day/pit session. Price action has been weak and it seems that the strong buying interest that fueled the sharp rally in August has softened for now. There are a few factors that have slowed the sharp rally in the soybeans.
First off, most of the dry areas have gotten much needed rain. Now, rains may have been too late to save yield potentials but at the very least the rains have eased major crop stress and helped fill pods. At this point weather is becoming less of a factor as the damage has been done but rains have now stabilized conditions in most areas. An early frost would be a different story, but for now we are not seeing any widespread frost issues in the near future.
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A second reason the soybeans have simmered down is that the September USDA report, while certainly more bullish then the August USDA report, may not have been bullish enough to justify the rally leading up to it. To some extent it seems like the market was factoring in a lower yield and carry over then what the USDA gave us in the report. Now, there are two arguments here as well. The bull camp will suggest that the USDA is just stair stepping into lower yields while the bear camp will argue that the USDA wanted to make a one time "rip the band aid off" change and that the USDA will not be lowering yield projections significantly in the future. I tend to think that with the recent rains the second argument may be closer to the reality of things.
Lastly, but maybe most importantly, soybeans have been under pressure this week on the idea that demand may be slightly shrinking at current price levels. Export inspections and NOPA crush numbers showed that there are fewer soybeans being moved at current levels. This could be an initial shock reaction to the sharp turnaround off of lows and the ensuing rally but it could also be the case that price rationing soybeans would happen at or not far above current prices. The USDA is estimating a 150 million bushel carry over which is fairly tight, but higher prices could slow export demand and maybe even encourage imports from South America. It is important to understand that we are in a different situation then last year. Even though soybean production in the US this year might not be much better then last year's drought there are a lot more soybeans in the world today.
Last year the US had a drought directly after South America which put the world on a tight balance sheet. This year South America had a very big crop and they are gearing up for increased acreage for their next growing season which is quickly approaching. The world balance sheet is no where near as tight as it was last year which means that if US prices get too high global and potentially even domestic end users may look elsewhere to fill their needs.
The bottom line for soybeans is that things may not be as good as we were thinking in July or as bad as we were thinking in the middle of August. Really we will not totally know until half way through harvest when we are seeing what is actually out there. It does seem that what the market is saying now is that assuming the USDA numbers are correct and the drop in crush numbers are accurate we may not need to see higher prices to price ration demand. So, now it might be a waiting game to see harvest results.
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December Corn Daily chart:
November 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 while we have corn near $5.00 and soybeans near $12.00. 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 firstname.lastname@example.org
Please check out my Blog at: http://tedseifriedfutures.com/
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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.