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.
A few weeks ago we were watching August soybeans go higher seemingly everyday. Then all of the sudden the bottom fell out. To some extent we were expecting this, but we didn't know exactly when and how. After almost a $2.00 decline the August soybeans have traded sideways. So is the tight old crop grain situation gone for good?
About two weeks ago the Chinese government announced they would release 3 million metric tonnes of state reserves to their biggest end users with the intention of easing their tight cash market. It worked, probably better then expected in large part because it triggered a collapse in US basis at the ports. The idea is that China would not be buying any US old crop soybeans anytime soon. The collapse also spilled over to corn as well.
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The China news itself was not enough reason to cause such a sharp break. There had been large spread traders who had been doing very well being long August Soybeans and short November. When the China news hit it caused the masses to run for the door. So the move was likely exaggerated by speculation, as most sharp moves are. But what happens now that the dust has settled?
August soybeans are now in delivery period, so we will see in the weeks to come if commercials try to use the board to source soybeans at current prices. This could certainly be the case if basis strengthens in the days to come. Once August is off the board for soybeans and now that July corn is off the board it become a little tricky to determine where old crop bulls will express their bullish enthusiasm. I would think that the September - December corn spread and the September - November Soybeans spread would be the likely target. This is not a for sure thing however as September contract can take on old crop or new crop characteristics depending on the year. With the late planting this year and the tight situation left over from last year it would make sense for the September contracts to act more like old crop.
If this is the case, it would seem that there is lots of room for the Sep-Dec corn spread and the Sep-Nov soybeans spreads to widen toward the September contracts. Currently the September corn contract holds just 20 cents premium over December. The September soybeans hold just a 42 cent premium over November while August is still 1.60 over November even after the recent crash in that spread. So, it would seem that if we are still concerned about the tight old crop situation and the September contracts take on more of an old crop stance (which would seem realistic considering late planting) then there should be room to add a decent amount of premium to September in the spreads.
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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 while we have corn near $5.00 and soybeans near $12.00. 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 [email protected]
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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.