Aug 2, 2014
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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.

Hedging Corn and trade Ideas for 9/5/13

Sep 05, 2013

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Attention Corn & Soybean Producers:

Feel free to inquire on learning about the best way to hedge. In my opinion my strategy is the best I have seen since I became a member in 1976 trading corn and soybeans for my own account. 

Are you tired of listening to the same BULL ****, and services that do not have a plan if the market goes down instead? Hedge means to take risk off the table, and my service has all producers 100% hedged and they do have most of the upside unhedged (if we can rally for whatever reason). Hedge with a Pro and option expert who has been trading grains for 37 years.

 

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This report was sent to subscribers on 9/4/13 3:30 p.m. Chicago time to be used for trading on 9/5/13.

 

 

 

 

 

Numbers for 9/5/13 are: 

December 2013 Corn  

                       
4.82                         
4.75 ¼                          
-------------4.69 ½           Pivot     
4.63 ½                                                                            
4.53 ½                                                                             
 


5 day chart....      Down from last week same day                                                                 
Daily chart   ...    Sideways                              
Weekly chart ...  Down                     
Monthly chart ...Down               5.49 is the 200 DMA
ATR 15                                              Oversold 13%
 

 

9/5/13: I continue to say "$4.98 is strong resistance. The 2013 low supports".                  

In my daily December 2013 corn numbers on Wednesday my pivot acted as resistance and was .00 ¾ from the actual high; my support was .02 ¾ from the actual low.                                                             
        
2012 low was $5.11 FG, 2011 low was $5.10 (now resistance), and 2010 it was $4.          

9/5/13:

Grains: Almost a $.70 one day implosion from the high on Tuesday to the low on Wednesday, so tell me how the fundamentals justify that kind of movement without a report or an "event"? Yesterday they came back from 3 days off and "analysis" of how the crops are doing; and today change the forecast and the market pukes out all gains and closed down for the week. How can the fundamentals possibly help you take advantage of the market swings? The charts insisted us to sell against the contract high and we got our chance twice now when $.01 from the contract high. We were $.04 ½ from our support on Wednesday.

Focus on fundamentals and not the price; and you are guarding and focused on watching the front door (fundamentals) so nothing is taken, while your house is being emptied of all the valuables out the back door.

On the other hand, what I have done my entire career, and even after 4 decades of watching fundamentals and more importantly how the market reacts to them, is concentrate on the price because that will actually put money in your pocket or take it away from you. The charts are the only thing that I use for price discovery. Yes, I can get a bias or direction from the fundamentals, but everything I do is to enter a trade where little is risked if the chart level holds, and is rewarded handsomely when it does. I have always throughout the nearly 7 years of doing my subscription service, repeated the same things that do not change, and the most important rule is to control risk by having a line in the sand to get out if the number does not hold and not lose too much on one idea. 

It amazes me how most "hedge services" and "advisors" can watch corn go down from where we hedged December 2013 corn at $6.50 and have had some protection for 6 months or more. They have held back from being 100% hedged, and unhedged they are looking at $4.70. I do not know how much higher than $6.50 they would have hedged, but I do know the unhedged have lost $1.80 trying. Almost all my producers have lifted part or their entire hedge and have at least $1.10 per bushel free and clear after all costs and commissions. Now they are just like the unhedged using their crop insurance that looks like they will be collecting too, and still have the upside possibility of more upside income if it can rally no matter the reason. Did you hear on the radio or read a few months ago, of a hedge strategy that said if corn goes below $5.50 that you should store it until 2014? How well is that strategy working, and how the losses you can be exposed to justify the risk, especially when HEDGE means to take risk off the table? Knowing the fundamentals is one thing, trading/hedging it is another.     

Next week we will see the latest USDA supply/demand report, but it is too early this year to be helpful on what is out there on over 175 million acres. Get the position you want prior to that report. All my producers have been inactive except for selling $15 soybean calls or buying put spreads to lock in more income because they have the positions they want. It is boring now I know, but what better frame of mind do you want to be in? Do you want action, or money? Your bet is inside your hedge, but unlike before you started my service, your risk is now much less, you have total control of what you do, and you slow down the market by controlling your risk.

I am getting tired of telling the unhedged for 2014 crops, that I recommended being 100% hedged long ago. I said and many have, locked in $5.60 December 2014 corn and $13.20 to $13.40 for November 2014 soybeans. Have a plan, a line in the sand, and never put your head in the sand because that does not work.

I want to day trade the market today without bias and risk $.03 ½ in corn and $.06 in soybeans using a stop to protect any idea.      

9/4/13:

Grains: Soybeans failed once again to break through the contract high of $14.09 ¾. The weather pushed the market sharply higher, but hit the wall where it has a few times now in the past including last Monday. Combines rolling will give the answer the market is "guessing" on. Trade the price, not the fundamentals. Fundamentals and perception are the drivers and point the direction, but the chart is your roadmap.

Combines rolling in the south are probably showing better than expected corn yields, and when the combines roll in the Corn Belt, the market will get real answers not guesses. Soybeans strength has not helped corn, and if corn closes below $4.70, I look for a retest of the low of the year of $4.45 ¾.

Corn put spreads are worth keeping until the chart picture changes. If $4.70 persists to hold, then sell the put spread when you want the upside back. The chart turns friendly above $5.10.

November 2014 soybeans posted a "double top" at $12.35 which was also last Monday's high, so the closer you get to there, the more you want to hedge 2014. 2013 will not help 2014 at all, only in sympathy temporarily. 2014 corn cannot be ignored, my plan is 100% hedged, and do you have a plan? Get one no matter what, have lines in the sand. You cannot wait for the race to be over before you want to place a bet, or hedge.

Crop progress showed corn declining 3% and 4% in soybeans. Weather trumps any crop progress report at this time. All I did on Monday was selling $15 calls for some producers, all around $.20. I want to trade the market without bias and risk $.03 ½ in corn and $.06 in soybeans using a stop to protect any idea.     

9/3/13:

Grains: Quiet holiday trade, grains finished the week positive but weak. September corn closed the week down a fraction. All other corn contracts managed to hold its gap support which is good, but vulnerable closing the week near the low. Same for soybeans, they made supportive gaps, and kissed the steep uptrend line support and held (line comes in at my pivot on Tuesday). You must also recognize that both markets closed the week much closer to the low of the week, rather than at the highs. Closing near the low makes the soybean market vulnerable to opening below the low of last week and going down from there. This would make an "island top" formation which is very bearish. December corn has the same possibility. On the other hand if weather was and is forecasted to be adverse when we open Monday night, we could leave another gap higher and would bode well for a retest of the high of last week. Nobody can predict with certainty what the weather will be on Monday night and the next 10 days. If the weather was exactly what was predicted on Friday it will be no help in discovering if we will go up or down from here.    

Commentary on 8/26/13 I wrote "The market perception right or wrong feels that the coming weather will be adverse for soybeans, and the bulls are starting to "kill the crop", but we are waiting to see how the current weather will affect the crop from here on. Corn does not have that weather thing going for itself, as a matter of fact from what my producers tell me, corn needs the heat and will be good for it at this time. Rain right now would turn both crops into gold, but the emotions are starting to run high that it will not rain for a long time and the crop will be greatly reduced. All that could be true, and no matter what, there are some major producing states that are looking at records. We do not know what was planted, we do not know how good the good is or how much of it is bad, we do not know what the next 4 weeks of weather will bring, and we do not know if prices will be sharply higher or lower from here in 4 weeks from now. Be honest. That is why you are using options, you clearly see what you have at risk, and you control that amount of risk because it is "known", and you can easily change your position to reflect your current bias". This still applies.

The only thing I know for certain is the facts of price performance in the past. I know that grains are always worth what the last trade price is, that is called reality no matter what you think. Charts are where I get a bias, and are what I use to bet on, pure and simple. I know where I am wrong (when the chart level fails to hold), and I know what reward I seek. Trying to find the "inside secret" or have the "inside information" or knowledge that nobody else has, is like buying a "tip sheet" at the race track. But looking at a racing form (like a chart) and watching a horse "warm up" before the race (twice) to see if the horse looks "right", is what a "professional handicapper" does. I do not want to find the magic of fundamentals; I want to learn how to be successful in the market. I want to know how to participate (trade/hedge) in the market because that is where the money is; what good is information if you do not know what to do with it?

When you have such a wide difference of guesstimates that in itself tells you how hard it is to make a guess I would bet on. All you need to do is look, and you will find a service that will say what you think or what you want to hear. I am telling you as I have for a long time, your guess is as good as anyone, so bet on your own thoughts and ideas. Now you know how to control risk if you are wrong, and that is a big advantage. My guess is from the charts, and the corn charts and 2014 soybean chart are "sideways" to "bear markets" and should be hedged because until the chart changes, they are longer term bear charts. Only the 2013 soybean chart is bullish, but the high for the year has been made and should be sold against it.   

Many have some long $5.10 or $5.30 put spreads which closed about unchanged and I think were worth holding onto as far as a "trade idea", because they are so intrinsic that you could be wrong the market on Tuesday closing $.08 higher and probably will not lose any money. If it goes down $.08 though, you should pick up $.03 or more in value. I would use a $.03 sell stop on the put spread idea. Look for all outright calls and puts to lose money unless the market is at least $.08 higher or lower.

I do not know what the unhedged are thinking about this weekend, but I know you are not worried about what the grains will do next week. Keep going higher and everyone makes more money, goes down and you have already captured from the rally what you wanted by selling calls above the market last week to add income. Higher is good, and everyone has enough made on the downside, and crop revenue insurance is protecting now, that the downside is good as far as us getting to start over at a lower price when the crop insurance is set to be paid. Enjoy the weekend; you really have a holiday from money and risk, so enjoy the "break".

I want to trade the market without bias and risk $.03 ½ in corn and $.06 in soybeans using a stop to protect any idea.

        

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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 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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