Apr 20, 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.

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?

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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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