http://profitabletradingtips.com/trading-investing/soybean-futures-are-up-on-news-of-south-american-drought - Euro Zone Austerity or Growth -
Last year’s torrential rains across Latin America are over and things have dried out, a little too much.
For commodity traders the most recent news is that soybean futures are up on news of South American drought.
The combination of high global demand for food, the prospect of diminished production capacity, and futures trading make for profit potential.
Traders may simply but futures contacts so soybean futures are up on news of South American drought.
More cautious traders may trade options on soybean futures, hedging investment risk while still taking advantage of the leverage that options trading offers.
A big part of how to trade commodities is fundamental analysis of weather trends as well as global supply figures.
However, when the market starts to move, other speculators buy and sell futures with the intent of making a profit.
As often as not futures prices can overshoot price targets that fundamentals might predict.
As such traders always need to keep an eye on market sentiment.
Global Demand for Food
The population of the world is growing. And, many previously poor nations are becoming wealthy and eating better.
A recent news item noted that bikini sizes in Brazil are getting larger as the lithe young girl from Ipanema has filled out due to an abundant supply of calories.
All of this leads to a higher global demand for food. These factors are demographic and strong.
Trading the fact that soybean futures are up on news of South American drought is not trying to outguess the market. The only questions are how much and how soon.
Diminished Production Capacity
As urban areas grow, previously productive farm land gets covered up with suburbs, concrete shopping center parking lots, and highways.
And there is always the weather. This last year was historic with flooding across much of South America. And then the rains stopped and the dry season, South American summer, arrived.
There has been no rain in some areas for months, just as crops should be ripening.
Yields will likely be down across much of Brazil and Argentina. This situation is not as urgent as what was caused by the recent draught in Eurasia but sufficient to for the fact that soybean futures are up on news of South American drought.
This is similar to trading a disaster such as the Japanese tsunami or a hurricane in the Gulf of Mexico, except that a drought develops slower that than the arrival of a hurricane or tsunami wave.
Futures Trading
Futures trading allows producers and buyers of grains, meats, and other commodities to hedge investment risk.
It allows speculators to profit from careful analysis of fundamentals and astute technical analysis of market sentiment.
2. To see a complete version of this presentation and
to obtain our free EBook follow this link:
http://portal.sliderocket.com/BLOUC/Euro-Zone-
Austerity-or-Growth
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Austerity-or-Growth
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3. Will Euro Zone austerity or growth be the key
to getting the various European Union
economies back on track?
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4. The issue of Euro Zone austerity or growth
came to the fore the other day when the
Spanish Prime Minister, Mariano
Rajoy, announced that Spain will exceed its
austerity limits in the coming year.
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5. Spain has the dubious distinction of being
one of the PIIGS economies
(Portugal, Ireland, Italy, Greece, and Spain).
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6. All of these nations have been in danger of
defaulting on their national debts and have
had, to varying degrees, to rely on support
from the greater European Union for help in
making payments on their bonds.
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7. An offshoot of the greater Euro Zone debt
dilemma has been a broad agreement to set
clear budget goals and to maintain fiscal
discipline.
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8. The belief of the more solvent members of
the Euro Zone is that the debtor states have
simply been profligate spenders.
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9. The belief of the
Italians, Greeks, Spanish, Portuguese, and
Irish has been that if they had more
significant economic growth none of these
would be an issue.
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10. With this background Spain agreed to
austerity measures. However, Spain has the
highest unemployment rate in the Euro Zone
and its Prime Minister, Mr. Rajoy, believes
that he needs to temper austerity measures
and promote jobs and growth.
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11. If your options trading has a Euro Zone
recovery in mind, the Spanish experiment
may be instructive.
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12. The various members of the European
Union, including Spain, have just signed the
treaty changes that obligate each EU member
to maintain tight fiscal discipline.
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13. This treaty change is the price that more
solvent northern EU members exacted for
coming to the rescue of their southern
brothers.
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14. For northern EU member the Euro Zone
austerity or growth issue has been decided
on the side of austerity.
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15. However, Spain had a budget deficit of over
eight percent of its GNP last year and was
initially aiming for just over four percent this
year.
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16. However, Mr. Rajoy now says that Spain will
likely come in with a 2012 deficit of slightly
less than six percent of its GNP.
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17. The obvious issue with the math for the Euro
Zone austerity or growth issue is that a nation
can have exactly the same monetary figure of
deficit for the year but come in with various
percentages depending on just how high their
GNP rises or how low it sinks.
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18. Spain is opting for faster growth in hopes that
growth this year will result in a lower
proportional debt next year. Now, what does
any of this have to do with profitable options
trading?
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19. The European Union as a whole is an
economy on par with the United States. Many
Euro Zone stocks trade as American
Depository Receipts in the USA.
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20. Bank stock options have been strongly
affected by events in the EU as bank
investment in national debt bonds has
threatened to provide substantial losses.
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21. Options traders of bank stocks stand to make
large profits if they are able to correctly
anticipate the result of the Euro Zone
austerity or growth issue.
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22. A higher debt load in Spain, Italy, or other
nations will likely lead to high bond yields.
However, with Greece as an example, if the
situation becomes dire, investors will end up
taking a loss on their capital investment in
order to avoid losing all of their investments.
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23. Although this issue is largely one for
European banks there appears to be some
degree of US bank exposure as well.
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24. For more insights and useful information
regarding options and options trading, visit
www.Options-Trading-Education.com.
