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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 Commentary for 5/12/14

May 13, 2014

 

 

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This report was sent to subscribers on 5/9/14 3:30 p.m. Chicago time to be used for trading on 5/12/14.


December 2014 Corn


After the close recap on 5/12/14: My pivot acted as resistance and was 5.00, .03 3/4 from the actual high, and my support was 490, .00 1/4 from the actual low.

July 2014 Corn


After the close recap on 5/12/14: My pivot acted as resistance and was 5.08 1/4, .02 from the actual high, and my support was 4.97 1/2, .01 from the actual low

December 2014 Corn

            

5.09 ½   

5.07 ¼   

------------5.00          Pivot         

4.92 ½                        

4.90                        

                     

5 day chart….     Up from last week same day                      

Daily chart …     Up      

Weekly chart…  Up           

Monthly chart…Down                     4.80 is the 200 DMA

ATR 10                                                   Oversold 28%      

 

For 5/12/14: Uptrend line is pivotal now, bracket line at $4.90 is support, daily numbers resist.

New subscribers should note, it is not coincidence the market stopped going down exactly at the uptrend line.       

 

In my daily December 2014 corn numbers on Friday; my resistance was .02 ¼ from the actual high; my support was .01 ¾ from the actual low.                                                          

July 2014 Corn

 

               

5.24 ¼                        2014 High                             

5.19                                                     

------------5.08 ¼        Pivot                                                   

4.97 ½                                                                                   

4.90 ¾ XX                 Sell stops below                                                                                    

                                                                                                      

5 day chart….      Up from last week same day                                                                     

Daily chart       Up                                

Weekly chart …  Up                        

Monthly chart …Down           4.73 ½ ithe 200 DMA

ATR 11 ½                                       Balanced 39%      

 

For 5/12/14: May contract was the only month to make a new high for the year (.00 ½) andclosed lower, which bodes well for another down day to follow on Monday.

In my daily July 2014 corn numbers on Friday; my resistance was .01 ½ from the actual high; my support was .02 ¼ from the actual low.        

2012 low was $5.11 FG, 2011 low was $5.10 (now resistance), and 2010 it was $3.24 ½ (spot month continuation chart). 

 

5/12/14:

 

 

Grains: Fundamentally, the report foresees much lower prices to come for soybeans more than corn. I continue to say that the high of 2014 will not be broken weather permitting. USDA price forecasts $4.20 corn and $10.75 soybeans. I do not agree about their old crop corn numbers, or most of their numbers, and I think the bulls caught a break on this report. Next month they might not be so lucky. Rarely do I say I agree or not with the numbers, I really do not care, but these numbers seem way too optimistic. Keep in mind, corn did close higher for the week. Bullish corn numbers should have taken us higher, but since we were already at the high of the year, it had nowhere to go but down. That is what makes an old cliché’ "buy the rumor or bull news, sell the fact". When a market cannot rally on good news, it has already been baked into the cake, and the pendulum swings towards the center. It can be very good if the facts were not already built into the price, then you know you are rallying on fresh news. No matter what is said, factual or guesses, it all goes back to the charts for me. Reasons do not matter. What does matter is that the market gets to a support or resistancelevel (or number for day traders) that I want to bet that the level will hold. I more or less risk little, seeking a nice reward.

 

Here is how I look at it, the weather does not look threatening in any way right now, and unless by the end of June we see problems, the market should work its way lower until harvest. Sure, there will be corrective rallies, but this has been a long term bear market since September 2012 when we hedged 2 years worth of crop hedges. Producers as late as March 2013 hedged December 2014 hedged corn at $5.60 too. Bulls have been in control since January, and we will see if the highs of the year has already been posted, and we are nearing support levels that they must defend, and if they go, the funds will look to reduce their exposure which means for them to turn sellers.

 

 Even though we have not touched our original hedges in 2015 yet, you could go "shopping" to see if you can improve your corn and soybean hedges, and that includes 2014 crops too. Everyone has some upside they can sell, and you should consider 1 in the hand versus 3 in the bush, and sell more of the upside if you want the income now versus the "what if" from these levels. 

 

Producers always enjoy the bull stories, but hard to except the realities I offer. Nobody wants to hear the downside, and yet that is the most important thing because that is what a hedge is for, to reduce risk for a producer. The upside means you can make more income which is never a problem, but the downside can kill you. You hedge to gain control and not be a victim if the market goes lower, unhedged does have unlimited income potential, but watching high prices does not capture high prices, and the unhedged always lives in the house of "no decisions". We will always have upside potential, and when they think to sell, they might be watching us get our crop back unhedged once again at a higher price level. Or the market goes down, they still do nothing, and they still want to sell it if it goes higher. As a trader, you must make decisions all the time, and you must take responsibility for what you do at all times, you must do the same thing as a hedger. This is our livelihood, and as long as we are doing things to the best of our abilities, it does not matter if our neighbor is doing better or worse, that is their life.

 

If you got $6.00 for your corn, and the neighbor got $6.50 and you are unhappy, and the next year you got $5.50 and they got $5.00 and you are happy, you need your head examined. I have taught you my mindset continually over the years, and I am glad to say that in this respect, my producers are success stories, because they no longer get involved in that game.    

 

Back to the charts. December corn finished the week higher and settled right on the uptrend line which is pivotal on Monday. Below it I want to take the sell signals only, above I would buy it but at a minimum contract size. New subscribers can read my past comments for weeks; wanting to sell against 2014 highs that and I had said the reasons why. Resistances hold until they do not, but you can see for yourself and observe in the future, or look at 10 different charts, levels hold until they do not. My approach as a day trader and long term trader is to discover the price level, and then bet it will hold. The times it holds are much more often than the one time it does not and I get stopped out for a small loss, but when it does the rewards can be great. I am the casino when taking those trades, because the odds are in my favor.

 

If the uptrend line goes, I would look for a retest of ... Subscribe Now!.

 

 July corn rejected its 2014 high, but the uptrend has not been broken as you can see with the uptrend line intact. The rejection is easy to see but does not mean the high is in, but you can start turning out the lights when it gets below that uptrend line. That will hold until it does not, but since it keeps going higher as time goes on, it will get easier to be broken. When it is broken it smells smoke, but it would be more like fire if it was a bracket line or low or high of the year. Trend lines are valid and I use them always.

 

Nobody knows what the market will do, but you MUST know what you are doing and why, being random or having a hunch does not work in the long run, your luck will run out. I make decisions on what I want to bet on, and it is all based on the chart, my ideas never change nor the reasons why I take a trade. As a hedger, you must decide what risk you NEED off the table, not just for protecting income, but for peace of mind that comes with it. At what price do you hedge, begin here, and if you are seeking to hedge at a higher price, make sure you have a plan to sell if it goes down instead. Until hedged, you are gambling with your income, not making a bet with "protected" income you can count on if it goes lower. No service out there can give you anything but their thoughts on what prices will be at harvest, and since Mother Nature is the only one who knows, you should ALWAYS make your own decisions, which is the mission of my service.  


For the most part, my producers are well hedged and they are not concerned with what the market is doing, and you could say they are getting bored. Life is good! We can wake up if the market gets $.50 higher or lower, then we can capture more income if higher, and reduce upside exposure if lower. That is simple compared to the task of being unhedged and having to constantly worry what the market is doing. I would be worried too if I did not know what the market will do and did not know what I was going to do.   

 

I have a bearish bias, and trade the numbers using a $.03 stop in corn and a $.06 stop in soybeans to protect any idea.       

 

 5/9/14:

 

Corn:

 

You will know what you are doing sooner or later, it is a personal thing, but all before they met me could say they learned a lot of things NOT to do. I have said ever year, "nobody taught me anything, I learned from observing the losers and what they did to cause their demise". I had many to learn from, not many new members could make it past the first 6 months. The easiest first sign of trouble is when you see someone start getting emotional. Emotions are disaster in trading, even when making money. Next is when you see someone who was active and slowing down, when their jaw starts dropping they are getting killed. Usually, the unimaginable starts happening to them, they cannot believe it and become frozen without the ability to do something about it before it became a problem. They lost control. You must acquire an approach that works for you, your personality, your desire for risk or as little as possible, and the timeframe you can or want to trade in. Then you need a plan to accomplish your goals. You need a trading plan that controls risk as it pursues a reward. When you swing for a homerun, you have more of a chance to strike out; big rewards can have big losses without proper risk management.

 

Early wagering is ongoing until game time at 11am Chicago time, and the report release will be "kickoff". If you fail to plan, you plan to fail. Play chess, and know what you will do thinking ahead as many moves as possible. Know what trades you want to take and why. Know why you are improving your hedges, and wait the price levels to do so.

 

No matter what this reports say, by Monday it will already be factored into the price equation. More importantly, the market should be focused 100% on the weather and crop progress for direction after that. Every producer knows that June is a tough month to look for price advances without the help of adverse weather. This year more than most years, have factored in a higher price for May, because the real months of production building, is June and July, you can throw in August for soybeans. You know better than I, but I allow what I just said as the fundamentals that were always important to me. It does not tell me yields will be good or bad, but it tells me when it is too early, or too late to bet on it. Last year almost took away the desire to look for any help from the weather, it did not help at all, but instead it misled those who bet the weather produced a shortfall. Nonetheless the weather is still the absolute focus for now, but as time goes on without problems with planting which I do not see at all, and lack of hot dry conditions coming in, and I would expect a normal or above normal yield and larger production then what is being perceived by the bulls. "Markets can and will do anything" including making a new high for the year and then $.50 lower from here by end of June.

 

 

Whatever you do it is for harvest, not for today or next month, and the only thing to do at these levels is to improve the downside, the upside is way too expensive for my taste, and getting long where I want to be a seller.  

 

5/8/14:

 

Corn: 

  

December corn has held every support level the last 5 weeks, funds continuing to defend the bulk of their positions for now. At the same time they have not been able to advance the price past the current resistance levels. Anything can happen, and I think it all depends on the weather which is hard to predict, and impossible for me to bet money on. Only a cheap "what if" for me, I would rather take a "what if" to the downside cheaply betting that weather will be closer to a normal growing season rather than an abnormal one.    

 

I still think as the growing season progresses without incident, we will see $11.25 soybeans and $4.50 corn by July 1, and then it will depend on perceptions, momentum, and crop progress reports for clues to the next direction.

 

 

I continue to say, we have seen the high for the year in corn and soybeans, and would take the opportunities when at resistances to take the sell signals and risk $.03 in corn and $.06 in soybeans using a buy stop to protect my idea.  

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

The markets covered daily are 2013 & 2014 Soybeans and Corn.

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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. This is intended for educational benefit.

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