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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.

Grains End a Long-Short Week on a Sour Note

Jul 03, 2014

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.       

This holiday shortened week has not been kind to corn and soybean prices.  The week started with a shocking USDA Planted Acreage and Quarterly Grain Stocks report and has not been able to recover.  Weather has also been mostly ideal, adding to the pressure.  For the week December corn was down 33 1/2 cents and November soybeans were down 94 1/2 cents.  As we step away from market to celebrate America it may be a good time to think about the months to come.  

On Monday the USDA shocked the market with a much larger then expected soybean acreage number.  The bearishness did not end there as grain stocks number were also higher then expected for both corn and soybeans.  To make a long story short, this suggests that not only could we grow more soybeans then expected but demand for both corn and soybeans may not be as strong as we thought.  This could all add up to some massive corn and soybean stocks and maybe lower prices for next year.  

When we return from the holiday weekend however weather will become the main focus again.  So far weather has been mostly good with some flooding, hail and small pockets of dryness being the exceptions.  All together we are looking at very good crops on a national scale with corn at 75% good to excellent and soybeans at 72% good to excellent.  These are both historically high ratings.  

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But, there is still a lot of weather to get through before corn and soybean crops are "made".  Again, weather so far has been good for most with the biggest complaint being too much rain.  Weather forecasts are now starting to dry out a bit, which is welcomed by most areas and seen as beneficial for crops for now.  However, after a few days of drying down we may start to wonder when the rain will return and if this could be a change in the weather pattern to more of a hot and dry pattern.  This most likely will not become a real threat to crops but as we approach the key moisture sensitive stages the market could begin to get nervous that we may not reach the record yields the USDA is looking for.  

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Producers may want to carefully consider selling corn and soybeans on any bounce at this point.  If weather stays favorable on a national scale and crop conditions remain very good we could be looking at some massive crops and massive stocks come harvest.  This USDA report was a game changer in a few ways but all of them are negative for prices going forward unless there is a real weather event that reduces yield potentials.   

Happy Birthday America!!!  And thanks to all the folks that are the heartbeat of this wonderful country!!  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.     

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. 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

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.