Grains Higher on Technical Short Covering!
Apr 16, 2010
The corn market opened higher Thursday on continued technical short covering. December corn is now ten days up from the market lows. We suggest key time counts will be day 11 to 13 up which will be Friday and next Tuesday. If December corn is able to close with conviction above $3.95 the bulls will have something to scare even a more aggressive round of short covering. To our way of thinking this rally is a catch-up selling opportunity before the planters really start to run and the corn gets planted ahead of schedule. The final battle cry for the bulls is it’s too dry and hot too early. If we are this way in April what’s it going to be like in July/August. There was a recent report out by the University of Illinois which suggests that the last two year’s crops are too much above average and we are going to see a drawback in yields. In fact if we would see a 1 in 10 year weather event corn prices could explode this summer. To this point, they are correct but remember, if we have good growing conditions we may actually find out how good the crop can get as well. Our recommendation is to sell March corn at the $4 level but have a game plan on how your going to manage your short positions if we start taking out the April highs in late May to early June.
I see four strategies: 1) is to selectively liquidate on a technical buy signal, 2) change the form of how your short by rolling futures to long puts, 3) defend upside risk exposure by buying calls or futures against short position in cash and finally, 4) sell out of money puts to give some premium value to offset upside price risk.
Which tool you use is really dependent upon your cash flow, your ability to manage positions and the level of profit you are currently locking up. We will be working with our clients on a one to one basic on developing a game plan that tailored to their unique requirements.
All of the meats where up today. The interesting thing to point out is we are nearing historical highs. I would not be surprised to see some initial selling at those levels. If they can break the market one should also not be surprised to see some short liquidation if we actually gap through the old highs.
Right now the trend is up. While its not time yet to stat looking at long term hedging of the hog/corn ration it’s going to get here really quick if this rate of rally continues. I know its tough to start thinking about 2011 and 2012 pricing but remember great prices now will eventually motivate expansion of herd stock and increase feed cost. You need to be getting a game plan together now on how your going to tackle the future rather than live through another time period of poor profit that we have just come through.
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