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March 2013 Archive for 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.

What We Need to Take Away from this USDA Report

Mar 28, 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.   

I am sorry for the delay, it has been a crazy day...

Today will be one of those days I remember for the rest of my career.  It seemed every one was expecting a bullish Quarterly Grain Stocks report it was just a question of how bullish.  Ideas of greater then expected feed demand and an extended window of opportunity for US exports fueled the bullish fire that rallied corn and wheat over 50 cents off of lows.  Then the USDA changed the grain world.  Certainly the surprise the USDA gave us today added to the sharp sell off in grains but the gravity of this report remains - this is a game changer.

After the USDA made the move to increase feed demand 25 million bushels on the March report the market seemed to think that this was a beginning of a trend and that growing feed demand was going to continue to shrink the already tight ending socks for corn.  Never mind that cattle on feed has continuously been at its lowest point since reporting started in 1996.  The market took this information and ran with it.

As it turns out, socks were significantly higher then anyone had thought.  Corn stocks came out almost 400 million bushels above the average trade guess and 150 million bushels above even the highest estimate.  Soybeans stocks came in 65 million bushels over the trade guess and 16 million over the highest trade estimate.  Wheat was 46 million over the trade guess and smack on the highest estimate.

On top of the shockingly bearish stocks numbers we are left with some disturbing thoughts.  Feed was supposed to be the one strong point in demand.  Exports and ethanol demand has been lagging the USDA projections.  In particular, corn used for Ethanol is consistently 3-4 million bushels per week  below the pace needed to reach the current USDA projection.

Making matters worse, corn was down 7-10 cents going into the report on rumors that 5-6 cargoes of Argentinean corn was on its way to the Gulf.  This is a bit surprising because Argentina is not very far along in their harvest so this is likely to be coming from their old crop reserves.  So, if they are willing to sell old crop at these prices they sure would like to sell new crop too.  Now, today' drop in prices may dissuade some imports but the recent strength in the US dollar could continue to incentivise US end users to look south to fill their needs.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

Soybeans had been supported by Brazil's slow start to their exporting season and the idea that the window of opportunity for US exports would remain open longer then we had planned.  In hind sight we had to realize that this was a temporary situation and a temporary effect on the market.  The longer term reality is that South America has a massive amount of grain that needs to be absorbed by the global market.  We can see the effects of this already as old crop soybean sales dropped to next to nothing this week.  At this point, old crop US soybean exports will likely be quiet until after harvest.

Planting intentions were in line for corn and wheat and a little bullish for soybeans but with the stocks we have on the diminished demand structure it begs the question of whether we need to plant so many acres.  Now, we still have to grow a crop and some places are still a bit dry but if yield fall +/- 10% of trendline it seems that the market will have to work to buy demand back.  With land values and rents sky high it would seem that another agenda of the market will be to price out some acres.  This will likely happen by pushing grain prices low enough to force some producers out of the business in the next couple of years.  After seeing this report you have to wonder if this will happen sooner then later.

I do not write these words to scare anyone, the sharp drop in prices today did that.  And in this case fear may be good.  Many times fear teaches us a lesson.  One of my favorite people has a saying - "I'm a greedy pig, but I scare easily".  As funny as it sounds, this is a good way to approach your marketing.  Be bold when you have the tiger by the tail but be very protective when risks add up.  At this point we find ourselves in the position of the latter.  It is difficult to make the transition but it is absolutely key to survival.  I urge you to take a long look at your operation and your profit margins and protect what you have worked so hard for.  Do not be one of the producers that the market seeks to price out of business.  Feel free to call me if you want to talk about your plan.  If not that's fine, but please call someone if you don't have a plan.  In this market climate it has become an essential part of your livelihood.

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

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

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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

Buy the Rumor, Sell the Fact?

Mar 26, 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.   

Grains have spent the last few weeks rallying in front of Thursday's widely anticipated Quarterly Grain Stocks and Prospective Plantings reports.  Corn and wheat in particular have picked themselves off of lows on the idea that feed demand is cutting through stocks faster then expected.  As far as the plantings report is concerned, there may have been some acres moved back from corn to soybeans but overall there should be big acreage numbers after record high prices last summer.  But, is the USDA going to give us a super bullish stocks report that will send grains on another leg higher?

Feed demand does seem to be stronger then we had anticipated, and it very well could have caused a bigger then expected draw down in corn stocks and if the upcoming report reflects that it would probably get a bullish reaction.  However, you have to wonder how much of this has already been factored into the market during the last month as corn and wheat have both rallied over 50 cents off lows.  Keep in mind that this quarterly grain stocks report is retrospective, meaning that it is telling us what going on leading up to March 1.  A lot has changed in the last 27 days.

For one, the rally in corn and wheat may have been successful in price rationing some feed demand.  We can see signs of this already with last Friday's cattle on feed report showing the lowest placements since at least 1996 and maybe much longer.  As we saw last summer, price rationing can happen very quickly.  Global and domestic economies are more fragile and demand is more sensitive then in years past.

Another interesting idea that I have not heard much talk about is feed demand shifting more into wheat.  May corn and May wheat prices are almost identical.  Operations that have access to the cheaper varieties of wheat and can make the switch or add wheat to the feed mix should be taking advantage of this.  This will not completely offset corn demand for feed, but we could be overstating corn usage and understating wheat usage for feed.  Even if this report does not reflect this, it may be happening more and more as time goes on.

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

The biggest  factor going forward could be imports from South America.  In the last month the US dollar has gotten significantly stronger which not only makes South American grain more attractive to global end users but to the US as well.  We have heard reports of corn basis dropping at the gulf due to imports from Argentina.  If this is true it is especially surprising because they are not vary far along into harvest and this would have likely been old crop stocks.  If they are willing to sell us old crop stocks at these prices you can sure bet they would be very willing to sell new crop.  This is a situation that needs to be followed closely because it will likely dictate the price action in corn and wheat more then any other factor until we get into summer weather markets.  It has gone widely unnoticed, but the USDA offset the higher feed demand on the last balance sheet with an increase in imports.  If the USDA is looking to "scale in" imports into the balance sheet this could just be the tip of the iceberg and could end up making both corn and soybean balance sheets much more comfortable.

So, this report could certainly give us a bullish stocks number, but even if it does it may not be enough to send grains on another extended leg higher.  You have to wonder how much of this has been factored into the market already, and if higher prices has triggered price rationing and imports.  If the stocks report is bullish enough to rally the markets on thursday, I will be very weary of continued strength through next week.  The great news here is that the lead up to this report has given producers some better prices to sell.  Take advantage.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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

How Bullish Could Next Thursday's Grain Stocks Report be?

Mar 21, 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.   

Corn and wheat have had a nice 50 cent rally in the last 2 weeks.  Much of this is coming off of the better then expected feed demand on the March 7th USDA report.  There are a lot of talking heads thinking that the increases that the USDA made are just the tip of the iceberg and that the March 28th Grain Stocks report will show greater demand then previously anticipated.

It seems to be widely agreed that feed demand is stronger then current USDA projections, however it is unclear if corn or wheat is the bigger benefactor here.  Traditionally higher feed demand would go to corn, but with old crop corn trading over wheat it could be enticing producers to switch to feeding higher protein wheat at a lower cost.  The cheaper soft white winter wheat is not available in all areas and may not be an easy switch for all operations, but it would seem to be a savvy decision where available.

So the question is - is there enough unexpected domestic feed demand to sustain a 50 cent rally in both corn and wheat?  The upcoming Grain Stocks report will go along way to answering this question.  However, even if the stocks report shows greater demand then the USDA has currently accounted for we have to keep in mind that this was at lower prices.  How much price rationing has occurred after a 50 cent rally?  As we saw this last summer price rationing can happen very quickly at these price levels.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

Another thing happens at high price levels - competition.  A change that the USDA made on the March 7th report that has gone widely unnoticed or at least not talked about is the 25 million bushel increase in corn imports.  In fact the increase in imports offset the increase in feed demand for corn.  Now that prices are higher and the US dollar is stronger it makes importing corn from South America very attractive.  A 50 cent rally on top of a strong rally in the dollar is closer to a $1US rally down south.  If this occurs on a large scale it could more then offset any increase if feed demand.  So, if this 50 cent rally in the last two weeks has rationed any demand or triggered any South American corn imports this could be a short lived rally in old crop corn and wheat.  Even it this report shows a bigger draw down in corn and wheat stocks then expected the bullish reaction could be fleeting.  This seems like sure could be the case of "buy the rumor, sell the fact". 

Soybeans have been all over the map in the last two weeks.  We saw a sharp decline last week based on lower Chinese markets, concern about the Chinese economy, and thoughts that Brazil was getting their act together.  This week we have come back in a hurry on the idea that Brazil in fact has not gotten their act together and China said they are back to looking at US soybeans due to shipping delays.  The issue with this is that Brazil will get their act together and when it happens they sure do have a lot of soybeans to move.  Last week Brazil cut a tax benefit on domestic soy oil which means they will probably crush less and export more.  On top of that, China is selling up to 1.5 million metric tons of state reserves to settle down their domestic soybean prices.  This means that they might not need to buy many more soybeans between now and when the can start receiving shipments from Brazil.  At some point they will have to replenish their state held stocks, but they could very well wait for lower prices.

The bottom line is that this report could be bullish, but how much of this has already been factored into the market?  And, going forward how much price rationing has occurred for feed demand on this 50 cent rally in corn and wheat?  The big question is corn and soybean imports from South America.  They certainly have their logistical issues, but they also have a monster crop and they will eventually figure out how to get it shipped.  When they do I'm not so sure it matters how tight our old crop balance sheets were at one point because we could easily have all the soybeans and corn we could want delivered to our door for cheaper.  The strong US dollar certainly helps with that. 

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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

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

Beware the Trap of Switching Corn Acres to Soybeans

Mar 14, 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.   

In the last few months the market has seemingly worked hard to "buy" soybean acres at the expense of corn.  The last few trading days has started to correct this situation, but if you are only looking at the big board it is pretty attractive to think about switching some corn acreage to soybeans.  I urge you to take some other factors into consideration.

Of course the rotation needs to be kept up, and by no means am I advising guys not to plant soybeans but I do think that price action over the past few months has tried to trick us into planting more soybeans.  The fact of the matter is that the soybean market has stayed strong due the window of opportunity for US exports being extended by a slow moving Brazilian machine.  It just happens that Brazil is taking its time and keeping soybeans elevated to keep prices high as they enter the global export market.  This also inadvertently comes at a time where US producers are making planting decisions for the upcoming growing season.

The pitfall here is that the market might be enticing US producers to plant more soybeans when it does not need to.  The market does, and is trying to encourage South America to get their act together.  But many producers may be misinterpreting the relative strength in soybeans so far this years as an opportunity for the next growing season when it is most likely not.  It is an easy misunderstanding to make.  Markets move when they want something, for example the sharp rally this summer was because the market wanted to price ration demand.  Some years at this time of year corn or soybeans will rally in attempt to "buy" acres, but this year it is not the case.  This year the market wants the huge South American crop to hurry up and take its place in the world export picture and take the pressure off of a tight US balance sheet.

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

The price outlook for soybeans for the next growing season is pretty bleak in my mind.  South America has a monster crop.  On top of that it sounds like China has overbooked their soybean meal needs and may be away from the market for a while.  In the mean time there are also signs that their economy may be slowing down as well possibly slowing their demand anyway.  And then yesterday we hear news that Brazil eliminated a tax credit for domestic soy oil.  This reduces their crush margin and encourages them to export more soybeans.  Have no doubt about it, Brazil is going to flood the global market with soybeans in the coming weeks and months.

The wild card is always weather.  Sure, it is a possibility that there is another major drought this summer.  And in that case we would certainly see domestic soybean prices rally sharply.  However, South America has huge soybean stocks and relatively small corn stocks.  This means that corn should be the biggest gainer if we have a repeat of last year.  Droughts can be a funny thing though, in the sense that they can kill one crop but another might just get the timely rain needed to pull through.  It is possible, however unlikely that we have a corn crop next year and the soybeans fail.  This is about the only way I could see soybeans having a large price advantage come harvest time.

Overall I want to caution producers about making big switches in acreage from corn to soybeans.  Do not misunderstand this market, it is not asking for more soybean acreage it is asking for South America, Brazil in particular, to get their butts in gear.  And if you do make the switch, be very aggressive marketing current price levels.  Use this South America bump to lock in profit margins.  Producers should be doing this right here right now for soybeans anyway.  And, as always when we have some upside potential with a growing season yet to go I would recommend using a strategy that would allow producers to lock in a price floor while still having a chance to participate in higher prices, at least to an extent.  I can show you how if you like. 

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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 near $5.60 and soybeans near $12.50. 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

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.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

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?

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

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

March USDA Report Thoughts

Mar 07, 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.   

Tomorrow the USDA will release updated balance sheets for the grains.  However, with the Quarterly Grain Stocks report coming out on the 28th I wonder how much the USDA will want to make changes rather then wait to get a better read from the stocks report.  If there is a surprise it could be a lower then expected carryover number in the soybeans as export sales have remained very strong.

The trade guesses are looking for a slight decline in soybeans stocks and a slight increase in corn and wheat stocks.  The increase in Corn stocks could be coming form ethanol demand falling behind the pace needed to reach the USDA target.  Lower wheat stocks could come from a small decrease in export demand.  Soybeans could have an interesting report as export sales have remained strong for longer then expected with South America entering the global picture slower then expected.  Soybeans are very close to reaching the current USDA export projections and it is only the first week of March.  Logic would say that the current USDA projection is much too low.  This may be the case, but keep in mind that once South America is up and running our exports could fall to near zero and some of the sales we have seen recently could get canceled or switched to Brazil.  So it will be interesting to see how aggressive the USDA will be at this time.

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

South American production and world carry over numbers will also be a factor on this report as the USDA tries to sort out the South American crop.  Another interesting item will be feed demand.  It seems to be widely agreed that feed demand is stronger then current USDA projections, however it is unclear if corn or wheat is the bigger benefactor here.  Traditionally higher feed demand would go to corn, but with old crop corn trading over wheat it could be enticing producers to switch to feeding higher protein wheat at a lower cost.

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

 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

Time Might be Running Out for a Grain Rally

Mar 05, 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.   

If the grains are going to mount a rally it might need to happen sooner then later.  In the last 2 weeks both old crop corn and soybeans managed a 40 cent rally.  In the mean time new crop corn, soybeans and wheat have remained under pressure or flat at best.  Old crop corn and beans have benefited from a slow pace to export in South America that has brought more short term business to the US.  This has had a big effect on prices as the domestic balance sheet is already tight and getting tighter.  On the other hand, good precipitation events over the driest areas has kept new crop corn, soybeans and wheat from participating.

It is disconcerting to see the lack of interest in rallying on the part of the new crop contracts.  Many producers are looking for a rally to sell to lock in some good prices.  We are just months removed from one of the biggest weather rallies in history that produced record high prices.  Yet, here we are in the beginning of March looking at new crop prices very close to where they were this time last year.  Sure, there is a part of all of us that wants to wait to sell the big summer rally but there is another, more rational part of all of us that deeply fears what can happen if it never comes.  This internal struggle puts us in an awkward and vulnerable position.  Do we sell at what is perceived to be low prices compared to what we saw this summer?  Or do we leave it open and risk corn with a 3 in front of it or beans with a 8?

Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17

Unfortunately for those of us that are struggling with this, I think things might get worse soon.  The biggest factor that has been keeping new crop prices supported has been the strength in old crop and the tight old crop balance sheet.  I think there is a very real possibility, maybe even probability that the US will be importing South American soybeans and maybe even corn in the months to come.  If this happens our balance sheets loose a great deal of their tightness and in turn prices will need to come down to price domestic stocks back into the market.  The problem is that South America has a monster crop and they need to move a lot of product.  That competition could bread some sharply lower prices.

If or when this happens I can certainly see lower prices for both old crop and new crop corn, beans and wheat.  We do still need to grow the new crop so we can not push prices to extremes just yet.  We saw what happens with that last year.  But if we do start importing South American grain and wipe out the bullish cry of tight ending stocks the question will be how low will grains go before we can get a weather rally?

As much as I would rather see prices closer to the summer highs, and as much I want to see new highs made again this summer I have to ask myself where my risk is.  My risk is certainly to the downside.  I think it is imperative to protect the 550 level in corn and the 1275 level in soybeans.  The strategies I am using now have a floor under the market but they also allow for some upside potential as well.  I can sleep better at night knowing that I have locked in profit margin and at the same time I will be able to participate in higher prices if lightning strikes twice.  If you do nothing you have to ask yourself what you have to loose, and in most cases that is a lot.

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

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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