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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.

December Corn Daily Numbers & Trade Ideas for 10/6/11

Oct 07, 2011

This report was sent to subscribers on 10/5/11 2:30 p.m. Chicago time to be used for trading on 10/6/11.

December Corn

After the close recap on 10/6/11: My resistance was 6.20, .03 from the actual high, and my pivot acted as support and was 6.07 3/4, .03 3/4 (only .02 3/4 in open outcry) from the actual low.

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hours before today's open outcry?

Grain numbers for 9/8/11 have already been sent to subscribers at 1:40 pm.

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December Corn


6.36
6.20 Uptrend Line acts as Resistance
-----------6.07 ¾ Pivot & Downtrend Line Resistance
5.95 ½
5.87 ¾ FG

5 day chart........ Down
Daily chart ...... Down
Weekly chart .......Sideways
Monthly chart .... Sideways
Monthly chart .... Sideways 6.44 1/4 is the 200 DMA
ATR 22 Oversold 35%

december corn 10 6 11

For 10/6/11: Uptrend line is resistance now, $5.72¼ and then the low of March supports.
I continue to say "Long term uptrend line acts as strong resistance". (After the close I added today's bar)

In my daily corn numbers on resistance and was .02¼ high; my pivot acted as support and was .00½ from the actual low.

10/6/11:

Grains: Spot on numbers. My comments for Wednesday said "I liked the fact the December corn posted a higher low than yesterday, and the low was above the $5.75 ½ mark. Tonight they gapped higher and have a chance to rally and test $6 and then the downtrend line at $6.10.

We did close above $6 which is constructive, and now the market is in the position to easily hurdle the downtrend line which is pivotal today. First hour of trade tonight probably was inspired by the move in the stock market and crude oil (along with a weaker dollar) after the grains closed, but the market has not managed to attract the PRC, or sellers for that matter.

Random price swings of $.50 or more is quite common in corn and soybeans this year so try and take advantage of that fact. The "reporters" will find reasons along the way and "pin the tail on the donkey" fundamentally to match the price action of the day. They might be accurate and they might not see the riptide of buyers and sellers or their reason why. I look at markets by its chart performance, and try to be patient and make trades when the risk reward is in my favor. Yes, I might be waiting for a place to buy or sell because of my fundamental tilt on the markets, but I rarely take fundamentals into consideration in markets other than the grains.

Chart setup and the funds on the "buy side" of their cards (trading cards) buying 15,000 contracts on the day was the driving factor, but soybeans could not touch their high while corn kept making new highs, because soybeans chart does not have the supportive action the corn chart does.

Informa numbers were 149.5 BPA for corn but lower acreage that equates to a mere 22 MB increase from the USDA September forecast using 148.1 BPA.

Next week's Crop Production report should be the driver of the next move, but unless the report lowers production, corn might be priced right for now. A surprise increase in production should take us down to test $5.44 ¾.

I want to trade the numbers without bias today and risk $.06 in corn and $.07 in soybeans using a stop to protect any idea using a stop to protect.


10/5/11:

Grains: Spot on grain numbers! In each of the last 2 trading days open interest has gone up even with fund selling. That probably means that end users are "bargain hunting" and could be supportive in the near term. I cannot make a case for corn to rally from here. I could see some corrective action back to $6.10 as being possible, but $6.30 to $6.52 would be a gift to sell. If we did not close above $6 I would be disappointed if I was bullish, seeing how we just broke $2.07 off the high made on 8/29/11. Even in 2008 we only broke $.84 from 9/1/10 until 9/30/10, and that was the biggest breakdown in price in over 30 years. The most we rallied in
this period was $.81 last year, and in the 30 years prior we never even rallied $.40. In October 2008 we broke another $1.17, so more downside is likely. Worldwide economic concerns and in the US, and more fund liquidation as seen in
2008 is possible.

Soybeans broke $2.60 compared to 2008 posting a similar loss. In the last 30 years there was only 1 other year we broke $1 in the same period. In almost all years when the market went down in September, it was for less than $.50. Since 2003 is where the real comparisons are, because we are in the "era of the funds" where the pendulum really swings to the extremes. In October 2008 soybeans continued their beating going down a total of $4.74 from September 1st. From day 1 I have always reminded you, markets can and will do anything, my main concern is managing risk, and if you are a producer that equates to staying ahead of your coverage no matter what you think. Think whatever you like about the upside, but do not think away your risk

Monday afternoon FC Stone came out with an estimate of 148.7 BPA, up from their previous forecast of 146.3. FC Stone has a huge number of farmer co-ops and grain elevators, and they do more volume in the corn pit than most of the exporters. They also said production will be up 56 MB from the USDA September forecast. My guess is 151+, what's yours?

FC Stone also came out with a soybean yield of 42.8 BPA up from their September forecast of 41.1, and 1 bushel more than the USDA September guess of 41.8. That is up 72 MB more than the USDA forecast for production, and could raise the 2011/2012 carryout to 225 MB. If exports are reduced, we could see carryout of 250 to 275 MB. Maybe that is what is wrong with the soybean market, yields are going to be a bearish surprise, and that
might be showing up in price with early harvest pressure. As more firms like FC Stone comes out with more bearish numbers, it could help drive the funds to continue to liquidate and we can look at buying near $11.

One would think that grains have broken far and fast enough to buy, but the lesson learned in 2008 taught us that are not true. I really do not care what the fundamentals are except when I think the trade is making a mistake in their forecasts, and I can take advantage of it if it gets to a chart point such as the "double tops" just seen. I want to continue to look for places to sell, and unless at extremes I would only buy a minimum contract size.

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One of my producers reminded me about the crop insurance he has at $6.01, and so he will be making a windfall profit if the market does go down to $5, and another I asked about it confirmed the idea works for him too. They have all mentioned this when we were discussing making plans to hedge, and they baked it into the cake in their decisions. Since I have only worked with producers for 3 years, I forget this fact at times (until they reminded me when they had some crop damage or lost acres) and probably told them that they must keep that off my plate, since the nuances of each farm is not a "one size fits all" like my strategy accomplishes. No wonder why this year is a "dream come true year" when they are making windfall profits because they improved their original hedge many times, and now they are not only in position to make more money if they can rally, they can make more money if the market comes way down. They NEVER were in this position at harvest time before, and I think it will not be the last.

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Howard Tyllas

Tel.1-312-573-2699, 1-312-823-9189

Disclaimer: No guarantee of any kind is implied or possible where projections of future conditions are tempted. Futures trading involve risk.In no event should the content of this be construed as an express or implied romise, 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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