The Ted Spread

Is the Soybean Rally Back On or Not?

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY 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.

Last Thursday the USDA shocked the market with lower corn and soybean acreage intentions rekindling the soybean rally that had lost momentum in recent weeks.  Just as funds had rushed to get out of long positions before the report they came pouring back in after.  However, a bearish Quarterly Grain Stocks report and continued fears over trade wars have made it difficult for soybeans to extend the strength from the acreage surprise.  Will soybeans push to new highs or was this just a head fake?

On the March 1st Quarterly Grain Stocks and Prospective Plantings report the USDA indicated that US farmers intend to plant 88 million acres of corn and 89 million acres of soybeans, both below expectations.  For soybeans this was a little over 2 million acres below the trade expectations.  This could mean less US soybean production (depending on yield) and buyers came out in force.

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While the acreage number was the biggest surprise of the day, Quarterly Grain Stocks flew a bit under the radar.  Stocks came in larger than expected for both corn and soybeans.  However, I'm not sure why the average trade guess for corn was so low by my account this would have been a very bullish number.  But for soybeans the trade has a pretty good idea of what stocks should be going in.  For the most part we know what crush and exports were during the time frame which leaves only seed and residual.  So, for the soybean stocks number to come in well above expectations this could have a big effect on upcoming supply and demand reports.

In my book the acreage intentions number and the soybean stocks number were somewhat offsetting.  While lower acreage could mean lower production (especially in a bad weather year), going into the growing season with bigger stocks offers a larger cushion for error.  The ongoing trade war fears with China are also a potential black swan as China has clearly favored South America this year.

In the near term soybean direction may be dependent on the speculative position.  If funds see smaller than expected acreage and problems with Argentina as a good reason to keep buying we could still go higher yet.  However, in the long term the soybean outlook might not be so rosy.  If exports continue to struggle into next year and the US has a normal growing season it is very possible that soybeans could have a record ending stocks for the next marketing year.  Obviously weather will be the biggest factor.

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Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action.  Ted Seifried - (312) 277-0113.  Also, 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.  Follow me on twitter @thetedspread if you like. 

 

May Corn Daily chart:

 

May Soybeans Daily chart:

 

May Wheat Daily chart:

 

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

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.