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Hedging Corn and Soybeans

RSS By: Howard Tyllas, AgWeb.com

Howard Tyllas is currently a member of the Chicago Board of Trade and registered with the Commodity Futures Trading Commission as a floor broker and as a Commodity Trading Advisor.

July Soybeans Daily Numbers & Trade Ideas for 5/25/10

May 25, 2010



This report was sent to subscribers on 5/24/10 6:20 p.m. Chicago time to be used for trading on 5/25/10. Everything is done by Howard Tyllas, no program or black box.

Do yourself a favor and get your numbers after the market is closed to be used for the next session trading. Ask yourself how much would it have been worth to read my comments and get my numbers 14 hours before today's open outcry?  

July Soybeans

As of 9:55am Chicago time on 5/25/10: My pivot acted as resistance and was 1070.00, .50 (2 ticks) from the actual high, and my support was 1036.25, just .50 (2 ticks) from the actual low

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9.55                          
-------------9.42 1/2        Pivot
9.30                               Support
 
Use the same numbers as used on 5 / 21 & 24 /10
Trend                  
5 day chart...      Sideways from last week same day                                                
Daily chart   …. Sideways                   
Weekly chart …Sideways           
Monthly chart   Sideways $9.82 1/4 is the 200 DMA
ATR 14 1/2        Oversold 21%

                        
9.55                          
-------------9.42 1/2        Pivot
9.30                               Support
 
Use the same numbers as used on 5 / 21 & 24 /10
Trend                  
5 day chart...      Sideways from last week same day                                                
Daily chart   …. Sideways                   
Weekly chart …Sideways           
Monthly chart   Sideways $9.82 1/4 is the 200 DMA
ATR 14 1/2        Oversold 21%
I continue to say "Uptrend line (green) acts as resistance now. Bears target the bracket line support now". Crisscross of the up and downtrend lines near $9.46 should provide resistance. On Friday it did just that.

Using desktop chart again, eliminating lines not in play.

 July Soybeans for 5/25/10: 

In my daily numbers on Monday; my resistance was .02 1/2 from the actual high; and my pivot acted as support and was .02 1/2 from the actual low.

Patience to wait for good locations to enter a trade will reward you by providing minimum loss if wrong, and more profit if right. You might miss trades (some glad you did) and not be as active, but this type of trading makes you a casino, not a player.  

Grains: Spot on soybean numbers and corn resistance, support was not in play. You had all day to sell against the pivot as they traded at $3.72 most of the day. I would have swing traded it overnight looking for a retest of $3.59 support. I would have risked 3 1/4 cents to make 13 if right.

Tonight the market reacts to the bearish crop production report and is shaving a few cents off of soybeans and corn. I have the same bearish thoughts as always. Funds hold 49% of the soybean open interest (total contracts) and 42% of the corn. I can only think of their positions like betting a long shot of the chance of poor weather with odds of $1 higher in soybeans and $.50 in corn if they are right (unless a major yield shortfall) and they probably are defending the $3.53 level in July corn and $8.80 in July soybeans as a line in the sand for risk tolerance. I think the odds should be at least double what I see as being offered for their trade idea, and at this time I consider the upside a "sucker bet" and would use a known risk strategy to sell as they rally this year.

Bears like me will wait about 3 more weeks from now with a good forecast before serious selling will be on my cards. Before then I will continue to want to sell at a resistance for a day trade, keep short swing positions at these levels and look to take profits at support levels. My continuing commentary has been spot on looking for a sideways trading affair with the same parameters I have had for weeks if not months. As a trader of grains for decades, this was not hard to predict based on the timetable that Mother Nature gives us for a growing season. Knowing how the market breathes, with supply my main focus for how I approach the growing season, and the endless year after year crop scares that but only a few years turn in a shortfall in expected production that alters price. I am fully aware of the January "Final USDA Report" can be a game changer, and when it is the market discovers the next price level quickly. March, May and June can be game changers too. But my focus on supply I have learned is the gas pedal on rallies. When you have burdensome supplies the production shortfall rallies are limited and like having your foot to the floor on a Hugo, but when supplies are less than adequate and the same production disappears, it is more like when I put my corvette in second gear and doing zero to 60 in 4 seconds flat (stock out of the factory).

Bottom line was always the same as now, I use the chart for trade location, and the numbers are the street address when I am close. The fact of gaining experience on the fundamentals for use in direction is one thing, the mere fact that you gain experience from looking at the charts and practice through trading the discipline it takes to execute whatever your approach, money management, or time frame is more valuable.

Results for 5/24/10 were:

Soybeans: My resistance was .02 1/2 from the actual high; my support was .02 1/2 from actual low.

Corn:    My resistance was .00 3/4 from the actual high; my support was .04 1/4 from the actual low. 

Crude Oil: My resistance was 0.27 from the actual high; my support was 0.47 from the actual low.

S&P:    My resistance was 8.00 from the actual high; my support was 2.75 from the actual low. 

Gold:     My resistance was 0.90 from the actual high; my support was 0.20 from the actual low. 

Euro:    My resistance was .09 from the actual high; my support was .11 from the actual low. 

Bonds: My resistance was 9 from the actual high; my support was 13 from the actual low. 

Nat. Gas: My resistance was .043 from the actual high; my support was .034 from the actual low.   

Cattle:  My resistance was .10 actual high; my support was .50 from the actual low. 

July Soybeans for 5/24/10: 

Grains: Accurate grain numbers. More sales to the PRC is the only thing I can see fundamentally that was supportive, and technically corn posted gains of $.06, wheat $.00 1/2, and soybeans lost $.12 1/2 on the week.

Corn is in the middle of their 2 month trade range between the bracket lines. July soybeans are $1.18 lower than when they started 2010 and the bears look to test the bracket line support at $9.20 next. Any rally in soybeans on the heels of corn should be capped at $9.70. Corn needs to close above $3.87 1/2 in order to turn the chart friendly. They held their lows once again at the bracket line support (another example of why I use bracket line support) and have $.15 either way (up or down) to get to a bracket line.

Same fundamentals as last week that I consider bearish except for the PRC factor which is impossible to predict. Funds positions are basically in a holding pattern awaiting further clues as the rest of us. Ag markets held up well last week considering the good weather and outside markets that probably held grains from doing better.

Bottom Line this week is as I said in my comments for Friday, corn having a good day on Friday could embolden the bulls to mount a charge to test the $3.85 level, and if they do that they could drag soybeans to test $9.70. I want to trade the numbers without bias for day trading, and I want to sell corn and soybeans at the resistance levels.

July Soybeans for 5/21/10: 

I will be back in Chicago this Saturday, and then I will return to a timelier schedule. I will try and get part 1 out on Friday for this Monday 5/24/10.

Grains: Spot on soybean and corn numbers. Another day of bullish fundamentals did little to ‘float the boat" until late in the open outcry session when prices recovered to post small gains. I feel the same as I did yesterday, "market reporters" such as commission house salesmen, and analysts continue to spin the "bullish side" of the story, while I concentrate that we could get a 166 to 170 bushel per acre corn yield this year which would certainly cause grain prices to work much lower from here if realized.

I am not saying that we cannot work a little higher; I just do not want to bet on that, instead I want to wait patiently and see if I could add to a short position on a rally near a resistance level. I feel since the bulls cannot ignore the bearish fundamentals, any rally will be short lived. Today the bulls put another wrong tilt on the forecasted 90 degree temperatures forecasted for the Midwest, saying it is a precursor for possible hot dry weather moving forward. That might be true but it is still a "what if" not a "what is". The "what is" for me when I look at this forecast is just what the Doctor ordered. We NEED this weather next week considering the cool wet conditions that has slowed development.

Whatever the fundamental picture is and the current why the market moves up or down is always secondary to my charts and my numbers. While the bulls spin the cup ½ full, I consider it ½ empty.

Technicians might look at the lower prices for the run and a higher close as a key reversal, but I know better and know that all it means is that it should follow through the next day. (As I pointed out recently on 3 markets with the same signal in which in fact they all continued the direction for at least the next day) What the bulls need is a significant up day on Friday to embolden them and throw a caution flag to the shorts.

I want to day trade from the short side when possible, and continue a longer term short position that takes profits at supports on some of it and look to re-sell on a $.10 rally in corn or $.20 rally in soybeans.

Producers in the US and S. America I think are making a mistake by not selling what they have grown. I was told that most hedging services are telling their producers this week to finish selling the 2009 crop, are they joking? I recommended that ALL your crop be fully hedged by the January 2010 USDA report, and warned all un-hedged positions have more to lose than gain. I also wrote in my daily newsletter many times, a way to have your upside using options instead of futures to "own" some upside if they rally, risking only a minimum amount if wrong, instead of the huge losses they would have seen with futures or "cash" from un-hedged grain. Even if corn was $.30 higher from here and soybeans $.50 higher from here, you would be deeply underwater from where you could have hedged, and worse than that it is still un-hedged and you are faced with the same question, where am I going to hedge? The same option strategy I recommended for producers could have been used by speculators who wanted the downside, or the upside if bullish, both having a known risk and reward, and known margin if any.

Even if corn and soybeans were $.20 higher or more right now than in January, was it really worth the money if you had to wait until now to earn that? What do you think, the farmers of both countries who did not sell are using hedge strategies that allow for the upside but protect from the downside? I think not. I have little respect for almost all services I have seen, the pure "I think grain prices will be ...... and hedge 20% of your crop here, and % there, and more there, but when the market goes down instead, it is the farmer who loses money, not them. These archaic strategies were made for markets when I first started trading grains, but do not come close to the flexibility options strategies provide. I think the main reason they shy away from using options is the lack of knowledge on how to use them and not have them use you. Most of my producers have learned more from me than what any of their previous services representatives know about options. I always thought that hedge services had someone calling the shots with somewhat the experience I have, but it does not appear to be anyone who does. Even an 8 year old can tell you who they think will win a game or which way grain prices will go, and you think they have a 50/50% chance because it can only result in 1 or the other, but the casino's and bookmakers will tell you they do not.

In my mind unsold grain held by producers is bearish, I cannot see the reason for US farmers to be outright long unsold grain, but at least the farmers in S. America are waiting for the currency to devalue soon and therefore holding onto a dollar denominated commodity.

July Soybeans for 5/19/10:

  Grains: Spot on corn numbers and helpful soybean numbers. After the beating corn has taken, the $.03 ¾ they recouped did not impress me. The funds are getting entrenched in defending their long position, and if they fail it could get bloody. Nobody can predict where grain prices will be in 2 months, so I look at grain trading as I have for 34 years. At this time of the year all long term bets I make are based on the "what is" now, and the "what if and what could be" if yields are huge or have a shortfall. The shorter term such as "swing trading" where I risk $.05 or $.10 to make $.10 to $.30 is much more predictable, but the mode that I excel in is day trading because of my accurate numbers, and the first 13 years I was a corn and soybean floor trader mainly spreading, scalping (trying to make $.01 to $.05 and could be a buyer and seller many times in a few minutes) using my numbers, and having a core position when at bracket line or trend lines.

I want to continue to have a bearish long term stance, and if I was trading that time frame I would have an options position that reflects selling, and in the near term I would continue to sell call spreads that will make money even if the market does go a little higher. I like to sell rallies at resistance and only risk a small amount using a buy stop to protect. You know that when near support and in oversold conditions I like to take profits and look to sell again, I do not like to press the extremes for further gains.

July Soybeans for 5/18/10:

  Grains: Perfect (exact) soybean numbers and spot on corn numbers. Now we are in extremely oversold conditions and would think at least early today, commodities in general are ripe for "Turnaround Tuesday". I do not want to think the price decline was because of the grain market alone, the bulls must be concerned with the strength of the dollar, plunging crude oil prices, and weakness in global equities. You know I really do not care why.

Monday's crop progress report was a little friendly but meaningless in my eyes seeing as how we are forecasting open weather the next 2 weeks. There is no concern with the weather to worry about any upside event, and unless the PRC steps up and start buying the next few weeks, the bulls will need to be serious about holding their position. In the near term, if July corn takes out the recent low, liquidation by the funds could get ugly.

I want to continue to play it from the short side and would like to sell at resistance today.

Subscribers of 6 months or longer have seen this 3rd time at the down or uptrend line works a high % of time, and the risks are minimal when it does not hold, and rewards you nicely when right. No matter what market you trade, learn this tool that I have relied on for decades, and my instilling courage to believe in this in you that took me so long to truly believe in. I take these trades every time when possible, and in the long run in my years it has truly been a casino bet for me and not a player, and are the ones most worth taking. See for yourself and if you see this pattern works, start to incorporate it in how you use it to trade with. 

Want to know what I think for tomorrow and going forward?

The 9 markets now covered daily are Soybeans, Corn, Crude oil, S&P, Euro FX, 30 yr TBond, Gold, and  Natural Gas and Cattle

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           May Your Next Trade Be The Best                          

                     Howard Tyllas            

  

Disclaimer:     No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures trading involve risk. In no event should the content of this be construed as an express or implied promise, guarantee or implication by or from Howard Tyllas, that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are no indication of future performance.

 

 

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