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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.

It's an Old Crop Soybean Thing

Feb 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.   

Mixed markets again today as old crop soybeans (March - May) continue to try to rally while new crop beans (Nov and beyond), corn and wheat are under a good amount of pressure.  A surprise rain in Argentina covering most of the growing area and producing half an inch to an inch put a damper on a collective rally in the grains.  Now old crop soybeans are trying very hard to rally on their own while price action and chart action turn decidedly bearish for all other grains.

Grains as a whole seem very week at this point with the exception of old crop soybeans.  The weakness is coming from a lack of demand, prospects of a huge upcoming US crop, and a massive South American crop about to come on line.  It seems likely that corn, wheat and new crop soybeans could see lower prices between here and planting.  But why are the old crop soybeans so strong, and how long will it last?

South America has a huge soybean crop and is expected to bail the US and the world out of a tight situation, but they are sure taking their time with it.  Every year we have concerns about the sub par logistics in Brazil and Argentina.  Year after year we hear about trucker strikes, port worker strikes and multi mile long lines of trucks waiting to unload.  And, every year soybean prices rally and then miraculously soybeans start flowing out of South America.  I always find it interesting that South America has all these issues but a 60-80 cent rally sure has a way of fixing things.  Sometimes I wonder how much of these issues are exaggerated to coax better prices, or has it become a custom to rally the soybean market to reward / entice South America to sell their cash crop.  Either way there sure is a lot of incentive to get soybeans sold in a hurry.  Prices are very good right now and the outlook is nowhere near as bright.  So I would imagine that South America will figure out their issues faster then usual this year.

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The strength in old crop soybeans will end as soon as Brazil gets more aggressive in shipping soybeans.  I have a feeling that well be very soon.  And when that happens there could be a sharp sell off in old crop soybeans as our exports will no longer be relevant.  But, the sell off might not just be limited to soybeans.  Whatever spill over strength that has been holding corn and wheat together will be gone and a flush out is possible.  Even today wheat closed at new lows for the move and produced a sell signal.  Corn also produced a fresh sell signal on a daily chart.  So I really believe that this recent rally in soybeans is a great opportunity to sell cash beans and get some hedge positions established for new crop.  It certainly is a good possibility that we have a weather rally to sell at some point during the growing season, but that sure seems like a long way off.  And even if there is a weather scare this summer where will we be rallying from ?  $1 - $1.50 lower?  It is going to take a very real and damaging weather issue to rally that much and it would be a major surprise to see that two years in a row.

However, with the potential for a summer weather rally in mind I am currently establishing hedge positions that put a floor in near current prices while still allowing for some upside potential and I am able to do it for what I would consider a very fair cost.  Give me a call or shoot me an email if you would like to hear more about it.  Either way, I think all grain producers need to be thinking about managing their risk rather then wishing for higher prices.

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

March Corn Daily chart:

March Soybeans Daily chart:

March 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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