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Your 2009, yes, 2009, IRA contribution could be trading futures tax-free right now.
- Vincent Hayes | |
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Today's Featured Article
The USDA indicated that farmers intend to idle 7.1 million acres of farmland this year. The reductions will come in corn, wheat and cotton; and far fewer acres of soybeans than widely anticipated. The retreat by farmers, the broadest cuts in two years, is helping to set the stage for more volatility in prices of grains used for everything from packaged food and biofuels to fattening livestock.
The battle for acres between corn and soybeans this spring may not be as cutthroat after the USDA numbers showed higher-than-expected ending stocks numbers for both crops.
But, the 2009 acreage picture is far from crystal clear. Average estimates for corn plantings were forecasted at 84.5 million acres; however the USDA report showed that farmers intend to plant 84.9 million acres. This was neutral to slightly friendly for corn. Given the high fertilizer prices, high seed costs and increased land lease values, it is surprising that the planting intentions for corn are so high.
The surprise in the report was the soybean number. Average estimates for soybean plantings were forecasted at 79.6 million acres; however, the USDA report indicated that farmers intend to plant 76 million acres. This was surprisingly bullish for the soybean market: while the intended planting number is lower than first thought, this is still a record number of soybeans to be planted for the year.
USDA's Prospective Plantings Report and Grain Stocks Report on March 31 and the April 9 USDA Supply-Demand Report both were newsworthy in their own right. But with the combined results of the three reports, Cornbelt farmers, who have both old and new crop corn and soybeans to sell, have new information to digest.
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The planting intentions report indicated that corn and soybean acreage would not be expanding by any great degree. The stocks report indicated inventories were not surprisingly large and the supply-demand report indicated consumption would grow and carryover would decline for both corn and beans.
Going forward, weather will be a key factor driving the market. If spring is particularly wet, more farmers may decide to plant soybeans rather than corn due to lower nitrogen requirements and input costs. Soybeans can also be sown later in the year without yield losses.
All eyes are also on South America, where weather conditions will have a lot to do with soybean crop size there and, in turn, market prices in the U.S. South America has harvested smaller soybean crops than anticipated, though production was still good. March and April will be a key period of time in terms of just how much South American soybean production influences U.S. soybean prices. Despite strong U.S. export soybean sales, the markets usually favor South American soybeans once that harvest begins.
Farmers will want to watch for actual harvesting yields in South America, how well the crop is put up and how the governments handle export sales in the months to come.
With the global economy limiting the demand for US grain, the March 31 USDA acreage and stocks report indicates that supplies are not particularly burdensome and new crop production may not be all that large, leading to the prospect that a recovering economy could help push grain prices higher.
Therefore outside market forces may trump the effects of the weather and South American soybean output on U.S. prices. As the equity markets improve, there is an increase in demand for soybeans. In turn soybean futures trade respond negatively to lower crude oil prices, a down stock market, and volatility in the value of a dollar.
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To trade from this scenario, we are looking at a bear put spread strategy in July soybean options:
Trade:
Buy 1 ZSN09 960 Put -- pay approximately $1,900
Sell 1 ZSN09 920 Put -- collect approximately $1,150
Est Total Paid: Approximately $750
Risk: Approximately $750
Profit Objective: Approximately $2,000
This
is a worst-case-scenario weather trade with a bearish outlook on
soybean prices. If we experience a wet spring and farmers switch from
corn to beans, a move down in the soybean market is anticipated. As the
market moves down, the idea is that the options will increase in value.
Time is on our side as the July options don't expire until June 26 (73
days to expiration).
July 2009 Soybeans:
If you cannot view the Soybeans chart,go here.
The
risk of trading can be substantial and each investor and/or trader must
consider whether this is a suitable investment. Past performance,
whether actual or indicated by simulated historical tests of
strategies, is not indicative of future results. Futures trading
involves risk of loss. Trading advice is based on information taken
from trades and statistical services and other sources which
R.J.O'Brien believes are reliable. We do not assure that such
information is accurate or complete and it should be relied upon as
such. Trading advice reflects our good faith judgment at a specific
time and is subject to change without notice. There is no assurance
that the advice we give will result in profitable trades. All trading
decisions will be made by the account holder. Past performance is not
necessarily indicative of future trading results.
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About the Author
Vincent Hayes
is currently the Director of Sales for RJO Futures. His
previous experiences include working as a Commodities Broker for ZAP
Futures and a Foreign Exchange Broker for Global Forex Trading. He
trained with Larry Pesavento and Mark Douglas on Fibonacci Ratios,
Pattern Recognition and Trading Psychology. Vincent has a degree in
Finance from Western Michigan University. Additionally, Vincent has
appeared on Bloomberg Radio and CNBC.
Vincent Hayes can be reached at (312) 373-5303 or via email at vhayes@rjofutures.com
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Special Message from Our Author
Get Your Complimentary Wall Chart
Sign up to receive a complimentary historical wall chart from RJO Futures. This informative chart explores 40 years of market data on Crude Oil, Gold and S&P500 markets. Includes historical event call-outs.
Get yours now! | |
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