Oct 1, 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.

Is Harvest Progress Bullish or Bearish for Corn and Soybeans?

Oct 22, 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.        

Obviously the jump in crop conditions for both corn and soybeans is a bit bearish, but with the USDA being closed for over a month the market had expected and somewhat factored in improving crop conditions.  The big question was harvest progress, so with corn 39% harvested and soybeans 63% harvested is this bullish or bearish for the market going forward?  

Many years we would expect to put in harvest lows when harvest progress has reached 50-70%.  This year corn is well behind at 39%, but soybean harvest is right where we might expect lows to be put in with harvest 63% complete.  However, this has been a strange year, in so many ways, but the latest irregularity was having the USDA shut down for the last month or so.  This has had a big effect on grains markets, but none more so then the soybean market.  Not only was the market deprived of harvest progress and crop condition figures but we have not seen a USDA balance sheet in over a month and a half.  

The last USDA balance sheet that we saw in September showed fairly tight ending stocks for soybeans at 150 million bushels.  Now, this was not as tight as last year's drought effected ending stocks, but tight enough that prices should stay high enough to keep demand in check.  But, a lot has happened in the last month and a half.  Conditions have improved quite a bit, as we saw yesterday, and the last Quarterly Grains Stocks report that we saw just before the USDA shut down showed higher then expected stocks suggesting bigger beginning stocks and maybe even slower then expected demand.  So it would seem that the production number should be going up, beginning stock should be a little larger and all of this could be hinting toward a higher ending stocks number.  If this is the case it could allow for lower prices.  We will not get an answer to this very important question until November 8th, and if this report does show higher then expected ending stocks new low could certainly still be possible.  

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

Corn is still well below average harvest pace at 39%.  This would suggest that harvest lows are still on the way as the market still needs to absorb more harvest pressure.  Weather delays in the first weeks of harvest caused a bump in basis because little of the corn crop had made its way to the market place, but at this point basis has flattened and there is more corn coming in every day.  We have started to hear reports of elevators getting full and turning customers away for now.  It seems we have a big corn crop on our hands, the question is how big.  It could be the case this year that corn prices continue to drop beyond the 50-70% harvest completed as unstored bushels look for a home.  

With the big corn crop soybeans are going to have to compete for storage space.  At the moment futures are not giving much incentive to store soybeans, so even though the soybean harvest is past 63% more soybeans could also be hitting the cash market going forward as guys look to store corn at these low prices hoping for higher prices to sell down the line.  So, in many years harvest lows get put in when crops are 50-70% harvested.  This may not be the case this year as a big corn crop is going to take a lot of storage space and we could be in for a shock from the USDA when we see their first balance sheet in 2 months on November 8th.  

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

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.

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