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.
There are a lot of unanswered questions surrounding the grains markets at the moment. For one we need to know what the USDA is seeing for US corn and soybean production. The October report that was canceled due to the shutdown was supposed to be the first field based estimate from the USDA, now we look to the November report for answers. Another burning question is how the USDA will approach exports.
Production estimates have varied wildly in the last few months. It was a wacky growing season in the US with a cold wet start, a warmer June, a near record cold July and a hot and dry August. It had been difficult to determine the effects of this growing season on crops. At the time of the last USDA report in September there were still many traders and analysts who felt that the hot and dry weather in August could have done sever damage to crops. However, as we began to get into fields for harvest results looked better then expectations. It seems pretty widely agreed that the USDA will have to raise production estimates, but the question is by how much?
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While production is certainly a hugely important factor for determining the supply side of the balance sheets, exports will play a big role in determining the demand side. Export sales have been very good for corn and soybeans so far this marketing season. Export shipments however have been moving at a slower pace. A big part of this is because harvest delays have kept grains from the ports and shipments have begun to catch up in the last few weeks, but the possibility remains that some of the sales will get deferred, switched or canceled at some point.
Soybean sales in particular have been very strong. However at this point less then 30% of the sales have been shipped. In the last few weeks shipments have been going out and are starting to catch up to the sales, but we have to wonder how many of these purchases were made with the intention of canceling or switching to South America if South America has a good crop and/or prices go lower. Also, the US soybean export season runs from harvest till May at the latest so a large portion of our export business for the year may already be on the books.
With this in mind it brings up the question of how the USDA will account for export demand on this upcoming report. It seems likely that the USDA will increase export demand, but by how much? Will they go off the sales number and sharply increase export demand, or will they look at the shipments and choose to increase exports marginally with a wait and see attitude? If they go the aggressive route and increase soybean exports significantly this could off set increases in production and then some causing a tight balance sheet and possibly the need for price rationing. If however, the USDA takes a more conservative approach and only increases exports marginally the net result could be a bigger balance sheet and lower prices.
We will finally get some answers to the burning questions in the grains markets on Friday when the USDA releases their first report in 2 months and the first report using field based data. This report has the potential to be a big market mover and will set the tone in grains moving forward. For soybeans in particular the best approach might be having a short position with some short term upside protection. Let me know if you would like more details on how we are approaching this report.
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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. 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]
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.
Looking Forward to the Nov. 8 Crop Production Report
1992 JD 4960 with 14 Hours - Sat Outside for 20 Years