Sep 21, 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.

Grains Mixed Up Pre-USDA

Nov 08, 2012

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 ended the day mixed with wheat closing up 8 1/2 while corn and soybeans finished lower.  Row crops struggled to rally with the wheat on the eve of the USDA report and found selling pressure on the close.  The USDA report tomorrow could set the tone for the near term.  The interesting thing to me is that most of the trade is looking for very ho-hum numbers from the USDA.  Average trade guesses for ending stocks are very close to the numbers the USDA gave us last month.  So, is the expectation for a quiet report day tomorrow?  I certainly think not.

This report tomorrow is a big deal, maybe the biggest of the year.  The row crop production numbers the USDA gives us will likely be the final production numbers for this past growing season that went anything but smoothly.  After tomorrow the supply side of the US balance sheet should be determined for the 2012-2013 marketing season.  So this report will tell us exactly how much corn and soybeans we have and then we can shift our attention to following demand to see if there is need for price rationing.  The bigger the production number the less demand that will need to be rationed.  The issue right now, especially for corn, is there really is not a whole lot of demand out there at current prices.

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If the charts can tell us anything before the USDA report they would be predicting a negative report.  Personally, I think that when you have big fundamental news you can just as well throw the chart out the window, but it is interesting to note that while the wheat chart looks like it wants to attempt an upside breakout the corn and soybeans have a much different story.  The corn chart going into the report looks like it is moments from rolling over to the downside.  The short term 9 and 20-day moving averages have crossed below the 100-day moving average changing the long term trend to down.  In the last 3 days corn had rallied off lows to test 20-day moving average resistance at 747 and failed, even closing below 9-day moving average support at 742 today.  The soybean chart looks determined to retest October lows and gave a fresh sell signal today with a new low close for the move.  The moving average analysis for soybeans is more negative then corn with the short term moving averages (9 and 20) trading well below the 100-day and a fresh new sell signal with the 9-day crossing below the 20-day today.

From a fundamental perspective wheat has a bullish weather story in the US and abroad.  European wheat futures continue to test contract highs, and the 2 week forecast for the US plains is dry.  For corn the bull story has been and continues to be a short supply outlook.  That will be decided tomorrow, and looking forward it is tough to get too excited about the tight supply situation while we are looking at some of the worst demand numbers in years.  We might have to see corn go lower to buy back demand before we can get excited again about the short supply situation.  Soybeans also have a short supply and the US is the biggest shop for the world to buy soybeans at right now, however with South America planting record acreage and what look to be an El Nino weather pattern there could certainly be an abundance of cheaper South American beans in the months to come.  And, as we saw poor export sales this morning, the indication is that global soybean buyers could be going hand to mouth for now waiting for South America.  The soybean story will go with South American weather.  If weather continues to look good buyers will wait to make bug purchases and fill their bins.  If weather turns south as it did here in the US this summer then we will see a flood of soybean buying interest in cash and on the board.

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Either way I see this report tomorrow as having the potential for being a big market mover.  I also think that it can give us direction for weeks, maybe months to come.  I do agree with the average trade guess for soybean ending stocks, but I am about 100 million bushels higher then the average guess on my corn projection.  The USDA has surprised some with bullish reports the last two times around.  Is it a trend forming?  Or are we due for a bearish report.  A bearish report would sure get some more corn sold for export, I wonder if the USDA thinks about things like that.

With high volatility in a market, option strategies may be a good tool for hedgers and specs alike.

 

December Corn Daily chart:

January 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 while we have new crop corn above $7.00 and new crop soybeans above $15.00. 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=Seifried

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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