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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.

The Soybean Export Situation

Feb 13, 2014

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.        

Soybeans rallied to new five month highs this week despite a better weather forecast for Brazil, a disappointing export sales report and talk of Chinese cancellations swirling around the market.   The fundamental outlook for soybeans seems to be turning but prices continue to rise.  What is behind this and when will it end?  

A record pace of Export Sales has been the most bullish underlying fundamental lending strength to old crop soybean prices.  In the last 11 days the soybean market has seemed to be determined to price ration demand and in particular shut down the export sales market.  With the current export sales figure above the current USDA export demand projection the market has seen it as an immediate need to shut down exports to keep a tight balance sheet from getting tighter.  Thursday's export sales report was well below expectations but was still a positive number.  It could be the case that soybean will continue to be strong until the export sales number is negative and cancellations begin to occur on a bigger scale.  When a market has an agenda it works to achieve that agenda and it doesn't stop when the work is mostly done, many times it will only stop when the work is more then done.  In the case of soybeans right now this seems to be the case.   

The funds have a hand in this as well.  Funds are mostly technical traders and do not pay much mind to fundamental factors.  So, when you get a sharp move in a market many times it will extend further then it needs to as the speculators pile in.  Either way, this price rationing rally in soybeans has got me wondering - How many bushels need to get canceled to get back to the current USDA estimate?  And what happens if the market overachieves in its goal to ration exports?  

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

Currently the USDA is projecting 1.51 billion bushels of soybean exports for this marketing season.  So far we have sold 1.587 billion bushels of soybeans for export and we have shipped 1.215 billion bushels.  This means that so far we have shipped 76.6% of our total sales and it leaves 295 million bushels of soybeans yet to be shipped.  This also means that we are currently 77 million bushels in sales over the USDA estimate.  So, if the global export market shifts to South America from this point forward and cancellations were to start rolling in we could easily end up at or below the current USDA estimate.  

Even if the global end users continue to buy some US soybeans there is still a good possibility of larger imports from South America then what the USDA is currently projecting.  If prices stay at current levels or higher it will be very attractive for US buyers to took to South American, especially on the Eastern seaboard.  

So, for now the soybean market is continuing to push to higher prices to price ration export demand.  Based on Thursday's export sales report higher prices are beginning to curb buying, but there may still be more work to do.  In the process the market may end up doing too good of a job and could even encourage imports on a larger scale.  if this happens it could be setting soybean prices up for failure.   

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.     

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. 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

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.

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