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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 7/20/12

Jul 23, 2012

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This report was sent to subscribers on 7/19/12 2:10 p.m. Chicago time to be used for trading on 7/20/12.

December Corn

After the close recap on 7/20/12: My resistance was 7.99, .02 from the actual high, and my pivot acted as support and was 7.77 3/4, .01 1/4 from the actual low.

All charts and numbers for 7/23/12 have already been sent to subscribers at 10:30 pm on 7/20/12.

December Corn

7.99 2012 Contract High
7.93 ¼
-----------7.77 ¾ Pivot
7.62 ¼
7.55 ¾
7.40 ¼ FG
5 day chart.... Up from last week same day
Daily chart ... Up
Weekly chart ... Up
Monthly chart .... Up 5.71 is the 200 DMA
ATR 29 ½ Overbought 81%

For 7/20/12 I continue to say "High of this year is resistance and the gaps below support".

In my daily December corn numbers on Thursday; my resistance was .00 ¾ from the actual high, and my support was .01 ¾ from the actual low.

7/20/12:

Grains: Corn numbers were spot on, 2 soybean numbers were spot on, and 2 were accurate. My take by looking at price action, and knowing the fundamental of corn damage has been priced in at current conditions, and soybean weather premium looks like it was being put in now. The reason being the second half of July and first half of August is critical for soybean yields, and today is July 20th. If price action was just on the weather overall, December corn would not have closed lower while soybeans are making new all time highs.

The bottom line is as it has always been "I do not care what brings the market to a support or resistance level, I want to exploit it by taking advantage of the price". My plan as I have commented on for days and even weeks, is to lock in whatever I can when December corn is near $7.99 ¾. It was a great day trade on Thursday, and selling the pivot in the afternoon worked just as nice, but for my producers it is an opportunity to do something to take advantage what the market is giving them, no matter the reason it got there. What % they can keep and what % they leave on the table is really based on their own thoughts and ideas, and the risk and reward is clearly known as far as buying put spreads. The upside remains unlimited in corn right now, and soybeans for the most part has sold only $1 above the market, or they already got it back with unlimited upside leaving $1 on the table.

Whenever you do buy a put spread to protect what the market gives you, you know exactly what you "bank" no matter if the market continues higher (what we want), but if it goes down we know what we "banked". All are long about $7.10 and the market settled $.68 ½ above there. If this was the last day you would have a bin $.68 above your call strike which is profit. But if we go below $7.10 on expiration you would have watched profits come and go. The December $7.80/$7.10 put spread settled at $.33 ¾. For $.33 ¾ you have "captured $.70. It does not matter if we go higher because you are long unless you sell a call spread, and even then you are still long all upside except for what you sold. The put spread is an insurance policy.

If you are the little old lady at the racetrack (no disrespect) and going to tell me after the race is over whom to bet "knowing" the horse would win, here is what you would say. If it is above $7.80 on expiration you wasted $.33 ¾, and if the market is below $7.10 then it was the right thing to do. My service has taught you to know, "if you do something it is the right thing to do, or why did you do it"? No old ladies should be hedging with that "after the fact" mentality, it's not healthy, and it's not reality. I insist you stay in reality by keeping a journal of your thoughts, ideas, and have a plan even if it is to do nothing. Keeping a journal will speak reality when you look back and see if you are following your plan or not. It will keep you from feeling you missed something, or keep you from having that 8 pound fish you caught become a 20 pounder.

So, do you put the $.70 in your pocket for $.33 ¾ or do you gamble? That is totally up to YOU! You do not need me for that, or anyone else. It is your risk and your reward, and it is your decision. This has nothing to do with a fundamental, and if it cost only $.15 you would then be a foolish gambler trying to save $.15 to insure the $.70. My service is to empower you, and to take whatever I do that will improve what you do. I know some of my producers now know more about options than the brokers they worked with before. Old subscribers now look at risk reward the way I do, I want to be a casino owner getting the odds, not a player looking for luck to win. At some point in time maybe when your pockets are full, you should sell a call spread to pay for the most recent extended put.

What is out there today is all the chatter valid or not, all is unknown, and they tell you what has happened (like market reporters) or their latest guesses. That is because they have little to offer other than words, very little substance on how to trade or hedge, just buy this or sell that. In today's market more than ever before, if you do not have a solid plan and approach, you will get chewed up and spit out and the market will not even blink. Know what you are doing and why, or wait until you do. I had many 1 day trials today; it's been 4 weeks since I posted my grain, which is why I covered this once again.

December 2013 corn closed $6.09 down $.25. The spread I like settled at $.15 7/8. Market gapped sharply higher tonight up $.12, which makes it worth $.14 at $6.21. We started to hedge at $6.41.

The weather continues to be the driver especially for soybeans, so no chart can predict if we will be higher or lower next week. Betting weather is even worse than betting on past price performance in the charts. Yes it could rain and still go higher which would be bullish, or go down and it is still hot and dry which would be bearish. So you could be right the weather forecast but wrong the market, same as it applies to a report. I would rather be right the market for all the wrong reasons rather than being right the report and wrong what I did.

Soybeans: all are long except for $1 on most hedges. I would not sell a call spread just yet because we are making new all time highs, but extending up put spreads to "capture" what the market is giving me at some point is the prudent thing to do. When I have more to lose than what is left to gain, it makes the decision easier the more I have to lose. It is your decision on what you want to do. It costs $.43 ½ to lock in the November $16/$15 put spread. The $16.40/$15.40 settled at $.50 (50%). Do this every $1 higher extending your top put and gaining $1 more protection, would give you half of the entire move from here.

Lastly, you should consider selling 10% of your hedge into the cash market (with no margin required) and getting out of an equal amount of hedges here. The main reason to sell is that if we are still at high prices at harvest then you will need to buy more than $.60 put spreads to cover the downside, and it is harder to rally from a high level rather than a lower level. The reason to keep your hedge is if you lock in enough and the market goes down at expiration like it did last year, then you got a nice profit on the way down, improved your basis, need less of a put spread, and easier to rally $.30 or more and profit like the many times you have in the last 3 years. If you sell cash at $7.80, that is $2.30 more than your original hedge, and your put spread you sell still has value, and the call spread you sold is not at full value, and makes selling cash now highly profitable. If you spent $.80 to $1.30 up to now, that means you made $1 to $1.50 more than you original hedge, and all costs and protection were free. Your basis is probably better than in December 2011/January 2012 where almost all hedges were done. Same goes for soybeans. Up to you to stay long and manage your thoughts and ideas, or take some off the table. Nobody knows your cash basis better than you.

Too early to write off the weather market, and even if demand is destroyed at $8 in corn, it could still go to $9 if soybeans rally from continued hot dry. I want to day trade the numbers without bias and risk $.06 in corn and $.08 in soybeans using a stop to protect any idea.

Want to know what I think for tomorrow and going forward? My service has started to lock in $6.41 December 2013 corn, want to know what is next, subscribe now!

The markets now covered daily are Soybeans, Corn, and S&P's.

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Howard Tyllas

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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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