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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 6/7/10

Jun 07, 2010



This report was sent to subscribers on 6/5/10 7:50 p.m. Chicago time to be used for trading on 6/7/10. 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

After the close recap on 6/7/10: My pivot acted as resistance and was 9.39, the EXACT actual high, and my support was 9.20, .08 1/4 from the actual low.

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9.76 XX                   Buy Stops Above here

9.58 1/4                             

-------------9.39        Pivot

9.20 XX                   Key Support at bracket line  

 

     

Trend                   

5 day chart...      Sideways from last week same day                                                

Daily chart   …. Sideways                   

Weekly chart …Sideways           

Monthly chart   Sideways $9.80 is the 200 DMA

ATR 16 1/2        Oversold 24%


Key support is at the bracket line at 9.20. If that goes there is no support until the psychological $9 level. Next bracket line is $8.91. Last week's high is resistance.

In my daily numbers on Friday; my pivot acted as resistance and was .00 3/4 from the actual high; support was .07 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.  

July Soybeans for 6/7/10: 

Grains: Spot on corn numbers and soybean resistance, soybean support helpful. Poor export sales, excellent central US growing conditions, dollar making new highs for the run, uncertainty in global equities markets, weak crude oil prices, and selling to take some risk off the table before the weekend, sent buyers to the sidelines.

I could not have been more right in my analysis of the grain market throughout this year. I have insisted that grains would erode this year until it is evident that we would get through pollination without incident, and then the next downturn will occur. I have clearly stated that the only fundamental that I could see that would cause grains to go up from even these current levels is a shortfall in production. I told you I trade the market from the charts and not the fundamentals, and the charts have not been bullish for quite some time.

I told you the fundamentals give me a bias for direction only and not for the discovery of price. The charts discover where support, resistance, and the trend are. I do not know anyone who (as I have pointed out many times) speaks of the weakness in the fact that the farmers and funds have the majority ownership of grains, and the fact that they are not end users means that at some point of time they must sell. Unlike a seller who does not own the crop would be forced at some point in time to buy back to cover their position and get "flat" meaning have no position at all. This is why I keep saying the "longs" are in weak hands. Yes the funds are strong hands, unless their positions are underwater and the need to liquidate occurs. At that time the enormous position becomes a problem because unless a "new buyer" assumes their position, and the only two left to buy from them is the "short seller" and the end user (end users are the strong hands because they will actually consume the product) and they will not do that until a chart support appears that is at a bargain price.   

This week the market is bracing for what could be a meltdown as was seen setting up last week. I expect grains could go either way to start the week, and this is only because corn is extremely oversold and the crop report on Thursday could prompt profit taking and short covering before it.

25% of the producers on my book were looking to take some of their hedge off last week, but only 1/2 of them actually did so. The ones that did I told to have a plan if they went higher to look to sell again, and if they went down instead they should put them back on. I have made it clear since the end of last year to be hedged 100% of your crop, but when a producer wants to buy I can only say to have a risk reward (meaning look to make this if right and only lose that if wrong) and cannot really stop them from doing so. If they are right and the market goes up they would feel I got in the way of them making more money. They read my daily numbers and commentary so they know what I want to do. So when they call to buy back something, they already know what I am thinking and have taken it under consideration in their own decision. I have always told them that when they hedge they should leave whatever upside they want and that is their "long position" and will make money that way if indeed the prices rally. What I have also said and all my producers have learned, that in time their options can (and have) presented opportunities to add further gains without going up (but that really helps) by way of "morphing" into another strategy.

What my producers think gives me a rough idea of what all the producers think, and that the last 3 years has encouraged them to seek higher prices. If you look back in this decade alone barring the last 3 years, this IS higher prices. The problem I have seen is reflective on some of the recent inquiries to my service, they are already underwater and do not want to hedge to lock in a loss. Their problem stems from their input costs such as paying too high a price for renting land, equipment costs, seed, and fertilizer and so on. The market does not care what a producer pays to grow the crop; it only cares about what the actual product is selling for. The last price is never the wrong price, it is reality, and anyone who does not believe in reality is considered by the medical profession to be "crazy". The reality is if prices keep going down and they do not sell even for a loss, the bank will sell not only their grain for them, but everything else they own because they will become bankrupt. Just ask any farmer who lost their farm because they did not "think" the market would go down as much as it did.

It is never too late to hedge and can leave enough upside open so if the market does rally they can be profitable once again, but if it does not, they might be able to not lose the farm and be here next year. They also could lift their hedge at any time, and if they do not lose on the way down they could pick a better price to be long than here.

Grain prices cannot be predicted unless you know what the weather will be through harvest. That is why I have constantly told you to trade the "what is" not the "what if", but can easily allow the "what if" in your hedge or speculative position. It is much cheaper to be long grains with a known risk option strategy than ownership or a futures position. November soybeans settled at $9 on Friday and it would cost you $.28 1/4 cents to be long from now until 10/22/10 and have the right to profit until $10, no margin or worry of losing more than what you paid. But if the market goes down sharply you would still have your upside instead of being forced out. If fully hedged you could buy this option strategy and add it to the cost of the hedge. If you did this when soybeans were above $10 you would already see what I am talking about, and instead of losing $1, you would only be out about $.16 now and would still have a "pipedream" if a rally would occur. With my option strategy it could cost only $.21 for the right to be long from $9 until $10, and at the same time be fully protected being hedged from $9 down to $8.20 and at the same time as having the right to be long from $9 to $10. These prices are based on the settlement of 6/4/10. Hedgers or speculators can use this strategy. My phone is always open to my speculators and producers and I will explain to you how my strategy is done. KNOWLEDGE is power especially using options. With knowledge I can be wrong the market and still make money.

July Soybeans for 6/4/10: 

Grains: Spot on grain numbers off no more than $.02. I expected the corn bulls to make a stand and continue to do the same today. A failure to close higher today would cast a negative tone to the chart. The bracket line support at $3.55 is now resistance, and until the bulls can close above there, they are on the wrong side of the chart.

Soybeans are now at resistance levels and entering extremely overbought conditions. Selling July soybeans and using a buy stop at $9.78 is my idea; day trading selling against the pivot I would use no more than a .05 risk using a buy stop to protect. The SN/SX basis is the function of the spread to pry soybeans from farmers who still own them. The ones that do want more than the market offers seeing as how soybeans are down over $1 since the start of the year. It took about 28 years before the Gold market posted a new all time high from the one that was made in January 1980 (I remember it well having traded it on the floor as a member for my own account), so I hope the farmers have the patience to wait for $10+ soybeans. They wait for a weather disaster here or in another major growing region and they will certainly see that occur (at some time in the future years). I would hedge and allow for some upside at best for now. Good soy oil use for bio diesel fuel should not be of concern seeing as how supplies are adequate. With the weather being the way it is right now, oil yields should be huge. Farmers have no reason to not take advantage of the inverted price.  

July Soybeans for 6/3/10:

  Grains: Spot on corn numbers and soybean support, bean resistance was not helpful in Wednesday's narrow range. Next Thursday we will get the next USDA report which will be interesting and could move the market. Soybeans are benefitting from the tightest of the row crop current supplies, and there is plenty of 2009 corn yet to be sold if the market can ever rally.

No matter the report or current fundamentals, I trade the chart not the fundamentals. The biggest "what if" will always be the weather at this time of the year through harvest, but all I can see for June is good growing conditions that are widespread. So I am not concerned with a rally for now and as before I feel any rally to a resistance level is a selling opportunity. I always use a stop or have a known risk strategy when trading. We are nearing what I believe will be support and hold the market from further losses until pollination shows its hand. $3.27 1/2 looks to be support for July corn, and $9 to $9.20 for July soybeans.

We are at maximum oversold conditions in corn and a corrective bounce higher should be expected. I do not see the beginning of the month fund buying yet, but today would be a good day for them to show up and defend their positions. Failure to do so might be the signal that the funds are rethinking their position and exposure through asset allocation. With soybeans in a sideways long term trading range and corn in a downtrend in all time frame charts, corn does not look attractive to me on the chart, or the possible bearish crop production in 2010. The PRC is a really good source of sales, but they are not bigger than the possible surplus we can produce this year. They are not fools either, I think if they feel the crop is coming in good there and here, they will back off of purchases until the market is giving the crop away.  

Producers who have un-hedged crop will continue to hear from me to hedge their crop fully, buy the protection you need and give yourself the upside you want. This way you can make more money if they rally, yet know you have some protection from further losses if the market goes down. The biggest mistake a trader or producer, or end user for that matter can make is to not protect from losses that become "unthinkable" and wind up in financial hardship. Do not sit and think that it cannot get worse. Buying the upside is really cheap right now, so you can be hedged and have the upside you want.

Results for 6/2/10 were:

Soybeans: My resistance was .07 from the actual high; my support was .01 1/2 from the actual low.

Corn:    My resistance was .01 1/2 from the actual high; my support was .02 from the actual low. 

Crude Oil: My resistance was .07 from the actual high; my support was .04 from the actual low.

S&P:    My resistance was 2.25 from the actual high; my support was 2.00 from the actual low. 

Gold:     My resistance was 3.80 from the actual high; my support was 3.20 from the actual low. 

Euro:    My resistance was .42 from the actual high; my support was .63 from the actual low. 

Bonds: My resistance was 7 from the actual high; my support was 4 from the actual low. 

Nat. Gas: My resistance was .004 from the actual high; my support was the EXACT actual low.   

Cattle:  My resistance was .57 from the actual high; my support was .12 from the actual low. 

  

July Soybeans for 6/2/10:

  Grains: Spot on numbers! Bulls are looking around for some help, but none is to be found, no matter its own fundamentals or from outside markets. Crop ratings tonight will not help nor will the weather for now.

Trying to put myself in a "fund mentality" when it comes to grains, since 2010 began I am looking at a 10% drawdown in price and I would not be willing to add to my position unless the weather changes or in time the market fully discounts this year's crop. Today or any day can have up days, but I think we will get the sell stops in July corn below $3.51 1/2, and July soybeans sell stops below $9.20. What we do then is trade the weather for another 2 weeks and if not a factor we will see prices erode.

I have kept my long term bearish outlook all year and will continue to do so as I have said many times, until there is a "what if" that comes on my radar screen. I want to continue to sell rallies at resistance.

Results for 6/1/10 were:

Soybeans: My resistance was .05 (only .01 3/4 in open outcry) from the actual high; my support was the exact actual low.

Corn:    My resistance was .02 3/4 from the actual high; my support was .01 1/2 from the actual low. 

Crude Oil: My resistance was .39 from the actual high; my support was .97 from the actual low.

S&P:    My resistance was 1.00 from the actual high; my support was 3.50 from the actual low. 

Gold:     My resistance was 1.40 from the actual high; my support was 0.40 from the actual low. 

Euro:    My resistance was .27 from the actual high; my support was .28 from the actual low. 

Bonds: My resistance was 12 from the actual high; my support was 8 from the actual low. 

Nat. Gas: My resistance was .005 from the actual high; my support was .033 from the actual low.   

Cattle:  My resistance was .32 from the actual high; my support was .02 from the actual low. 

July Soybeans for 5/31/10&6/1/10 

Grains for 5/31/10 & 6/1/10: Spot on soybean numbers and corn resistance, corn support was helpful. I said a pullback would be in order on Friday, but I did not expect it to be as deep as it was. No matter how bearish I am, I am once again faced with bracket line support which means I want to take profits there and look to sell again on a corrective bounce even if only .10 in corn and .20 in beans. It is possible I will be selling again below where I cover but the amount of times it bounces as seen the last few months more than make up for the time it does not. This is another way I become the casino and have the odds in my favor, rather than the player who does not but thinks they are lucky and can beat the odds.

I will be watching the weather on Monday night, and will continue my bearish stance if nothing changes. I have done well to state my case, and new subscribers need only to read my trailing comments to know why. If you are long or are a producer who is long by the way of owning "un-hedged" grain, I would again caution you to be expecting and waiting for a summer rally. Owning grain via a good option strategy can have you own grain for "good odds" and a known risk if wrong. You can add that upside cost to your bottom line and be hedged if wrong and the market goes down. But to not have some kind of hedge puts speculators and producers in a situation of risking how much if you are wrong, and where will you see and take profits if right? My numbers do that for me, and I can be short many times (and even long sometimes) in different time frames. Being long and doing nothing seems more like investing than trading, and I am not an investor. Lastly, we are down grains on the year, as a matter of fact they are taking a bloody beating, but if I am right and the weather cooperates, they have an equal amount more to lose before the bleeding stops.  

Note: In the grain markets on Friday the numbers offered good trades that risked minimum amounts to obtain the profits, another example of why I consider myself a casino. Look at the 5 minute bar chart to review, but when you have numbers that result in spot on actual results, the question becomes how do you trade them to profit? I approach every market the same, and you should journal your approach to see what you are doing right and wrong, and if you are executing your plan. Journal your intuitiveness to see if it is helpful or not.

Results for 5/28/10 were:

Soybeans: My resistance was .02 1/4 from the actual high; my support was .00 1/2 from actual low.

Corn:    My resistance was .01 from the actual high; my support was .04 1/4 from the actual low. 

Crude Oil: My resistance was 1.04 from the actual high; my support was 0.39 from the actual low.

S&P:    My resistance was 3.75 (only 1.50 in open outcry) from the actual high; my support was the          EXACT actual low. 

Gold:     My resistance was 5.10 from the actual high; my support was 2.90 from the actual low. 

Euro:    My resistance was .54 (only .06 in open outcry) from the actual high; my support was .63 from the actual low. 

Bonds: My resistance was 14 from the actual high; my support was 5 from the actual low. 

Nat. Gas: My resistance was .037 from the actual high; my support was .024 from the actual low.   

Cattle:  My resistance was .05 from the actual high; my support was .30 from the actual low. 

Nat. Gas: My resistance was .037 from the actual high; my support was .024 from the actual low.   

Cattle:  My resistance was .05 from the actual high; my support was .30 from the actual low. 

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?

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           May Your Next Trade Be The Best                          

                     Howard Tyllas            

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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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