Hedging Corn and Commentary for 7/21/14
Jul 21, 2014
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These numbers were sent on 7/18/14 4 pm to be used for trading on Monday 7/21/14.
December 2014 Corn
------------3.78 Pivot & contract low
5 day chart…. Down from last week same day
Daily chart … Down
Weekly chart… Down
Monthly chart…Down 4.66 is the 200 DMA
ATR 10 Ex. Oversold 1%
For 7/21/14: Contract low is a pivot now, daily numbers provide support and resistance.
In my daily December 2014 corn numbers on Friday; my pivot acted as resistance and was .01 (.00 ¾ in open outcry) from the actual high; my support was the EXACT actual low.
"The low of 2014 made in January is an automatic bracket line, now resistance".
Grains: Corn closed on its lows, and is highly likely to gap lower on Sunday night unless the weather forecast changed. September corn jabbed below the low made last Friday to see if there was sell stops below, and since there was not, they held off from jabbing below the low in the December contract, they will wait for Sunday night for that. Bears are already in total control, they might as well wait for the weekend weather and latest forecast to give the green light on Sunday to press the downside, and punish the bulls. The best the bulls can look for is a retest of last week’s high.
November soybeans actually closed $.10 ¼ higher for the week, but $.33 ½ off the previous day’s high, closing the week poorly. The market needed to correct as I noted before the correction began. Last Monday’s comments said it might go down for a day or two, but I thought a retest of the previous weeks high was likely. On Tuesday I said I was looking for $11.17 ½ and I said I would sell it there. Wednesday comments I was looking for $11.17 ½ and said it was dangerous to be long looking for a rally. On Thursday it got to $11.18 ¾. I am not a reporter after the fact, I tell you what I think and why, and what I want to do no matter if the market goes higher or lower, I have a plan even if it means doing nothing.
Bulls have a chance if above the bracket line at $10.88 ¼, but below there they are in for more trouble and at least a retest of last Fridays contract low of $10.65. Best the bulls can look for this week is a retest of last week’s high.
Low volume and small ATR’s do not bode well for higher prices. I never like to buy a quiet market, although normally the grain market is slow and low volume during the growing season when there are no weather events.
I have the same story since September 2012 and will tell it again, if you get decent growing seasons going forward, grain prices will have nowhere to go but lower without regard to the cost of production.
I still think we will go down to my projections by harvest, and then should claw our way back until March. The claw back at best will be to our current levels. Next year at this time if the 2015 crop looks like this one, I project $2.90 corn and $7.90 soybeans, those prices held the huge meltdown in 2008, and good enough to earn my respect.
Our 2015 corn hedges are now below our protection, 95% of my producers hedges are $4.90/$4.40 or the $4.80/$4.30, but in time these spreads will get to $.45, and then you can start over with $.37+ in your pocket and get new protection. If you let it go to full value, most paid $.04 or less by selling a call spreads, leaving you with $.46 minus commissions.
Our 2014 and 2015 soybean hedges are doing fine now, but it is only a matter of time before that protection runs out.
New hedges should consider selling more upside away, or closer to the put spreads, to make it cheaper to buy a little more protection than $.50 corn or $.80 soybean hedges. Many the last few years have bought much more than that, or morphed cheaply when they had one of many chances, and have really paid off. Maybe they were bearish, maybe just glad to lock in more of what could be high prices, but whatever the reason for their decisions, it was comfort for them when they hedged, it was comfort when we rallied, and certainly is comfort now.
Take responsibility for your decisions.
Instead of saying what you should have done (the old lady at the racetrack), learn from your past and do what is right for you now.
Many have hedged 2015 100%, some only a percentage of what they NEED. With my many warnings for the unhedged, and demand for you to have a plan if not, you are in jeopardy of working for nothing next year. A few weeks ago you could have gotten $5, many a day for months it was offered there, and I do not know how much you were looking to sell it higher for, but right now you are losing over $1.20 to get it.
Think what you want, but reality is the only real. Corn, or a car, or a house might be worth a price in your mind, but go into the real world and you will find what reality says they are worth. Grain pricing is easy; the last price is always reality.
Now reality hits home, with a good crop this year stocks will be burdensome, and the only way to use the crop is to go lower and find demand only low prices can activate that cannot be used at current price levels.
Nobody on my book has December 2014 corn protection below $4. Your insurance should be taking over for protection below there. Nothing could be done cheaply once the market went below $4.80, if the decision was made not to need more protection when above $5 and cheap; the price makes the decision for not getting it when expensive. Instead of worrying about more protection for 2014, worry about what is unhedged for 2015 where you can always get $.50 protection and at least $.50 upside unhedged really cheap for $.04 or less. Buying $.20 at the money corn 2014 put spreads will cost almost $.10 and not worth it when your insurance should really be working for you at this price.
You must wait until your 2014 corn call spreads are bought back, and your put spreads are within $.02 of full value, before you can make another decision. In time and you already have the price of the insurance locked in, and then you can easily start over and do ... Subscribe now... You made between $.40 to over $1 depending if you started when at $5.60, and how bearish you were, or how well you morphed when cheap. Add that to a $4 call you might sell, and what you get in return is a new 3 way protection for little to no cost depending on the strikes you select.
This is the first week this year that I am hearing bad news from many a producer who called when placing orders. My producers are doing great, but everyone around them is turning into if not already, the living dead. There are many at every exchange, and I have seen many every year and now can remember them as "ghosts of bad decisions past". I never want to put myself into that "position", and it is their position that gets them into deep trouble. It was easy to learn from watching traders make that fatal lesson before I bought a "seat", nobody had to tell me the reasons why they could not last more than 6 months, nor what they were doing and why, I just learned that if you lose too much on one bad idea, you go "bust". So the easiest way to avoid that was to not risk too much on one idea. That is one important lesson I learned from the losers that I keep in the forefront of my approach to this day, the winners rarely taught me anything about what they do.
Now reality is sinking into the unhedged, and instead of thinking how they will spend all the money when they can sell corn at $6 or whatever they were looking for, now they are looking on how to pay the bills. "The market went down, there was nothing I could do, or that is a part of the "business" they tell their wives or worse if they really tell themselves that, because all that means is that is their way of masking the "gambler" inside themselves. Life must be boring without the gamble, like there are no other gambles in farming, but the one gamble should never be allowed to be neglected, is some sort of hedge to protect your income separate from what you think. The unhedged are more worried about what they leave on the table or do not make if it goes higher, than worried about what happens if the market goes lower instead. Just as I form trade ideas, I taught you to hedge, the first thing I look at is protecting the risk if wrong versus the reward for being right. I do not want to try and hedge $.40 higher and watch the market go down $.80 instead. Just like I worry about what the risk is on a trade idea, you must worry about protecting your income if the market goes down.
I am proud of this hedge service, you have all one way or another, hedged all or part of your risk, you have total control of what you do, and you know all the reasons when to improve your hedge cheaply as time goes on. You use the chart as your road map, and that is all you need to make your hedge decisions. I am getting many calls and inquire from the walking wounded, and the one from the other day is the winner so far this year. He opened a hedge account at a "big name" firm, he hedged and of course he made money, and the broker told him he "was suppose to use that money to gamble on the grain market", and within an hour he lost most of the money made on the hedge. How many victims are out there? It is like going to a "quack" when you thought he was a real doctor. He says he graduated from Harvard, but if you look closely at his paper on the wall it says "Harvard" Nigeria. Big name firms in my opinion have a lot of quacks and very few doctors. Being self directed is the most important thing you can do to protect yourself from what is "out there".
As the weather permits, we will work our way lower. Rallies will be short lived and met with sellers at resistance levels. If producers and funds turn sellers, we can see sharply lower prices by September after the weather premium is taken out of soybeans. You can say it is like an odds on favorite paying only $2 for every $5 bet, but heavier favorites than that lose more than you would expect. This crop is NOT in the combine yet, and I have respect for the market knowing it can rally for some unforeseen or unknown reason, but it can rally.
I said in September 2012 we could be starting "the great bear market" because we started from "all time highs". Those highs was the first mile in the marathon, we are much more than half way to the finish line now, but plenty of race to run yet.
Now the whole farming industry will feel the change, and those who live in the now but do not plan for the future, are their own victims, and I say that in all aspects of life. I have always "lived for today, but plan for the future", and I certainly did that daily to make a living, let alone on plans for the future of my family.
Red ink is here and now, and it does not look like things will get better until there is a production shortfall, and that is a terrible bet. Betting the "normal" is better odds than the abnormal. I tell my producers that in time they will see "fire sales" but to make sure the fire is out before you buy it.
Hedgers who are 100% hedged through 2015 have taken "income" off the table, as well as stress, and buys time for more decisions for 2016. This is the first day of the rest of your life, write in your journal daily what you feel is right for you, the reasons you hedged or did not hedge, and at least try to execute your plan, and learn from your experiences to improve the way you look and do things in the future. The BEST thing that can happen to you after you hedge, is for the market to get into 2008 or 2012 mode and rally straight up, because that means you can capture more money than your original hedge.
I know I have said things you do not want to hear, and put words in front of your eyes that you know you cannot ignore, but just like it is easy to be a bad parent and hard to be a good parent, it is worth it for me to take the hard road to say what is right for you.
I know what sad faces say weeks before they are never seen again, because the gorilla in the clearing house will not tolerate trading on reasons, you must trade money, so he makes sure he gets between you and the floor. Your bank and other places have the own gorillas, you have seen them too pass over your farm on their way to another, so make sure you never let potential profits cloud the responsibilities of protecting your money if it goes down instead. Hedge service or not, as a trader I live by the same rules.
I would think current levels will hold, but I would not bet on it, I would rather sell significant rallies like at the highs of last week if we can get up there. I continue to say "I want to day trade futures without bias today but realize the market is extremely oversold and would be cautious when taking the sell signals down here, and risk $.03 in corn and $.05 in soybeans using a stop to protect any idea".
Grains: I do not think we are going anywhere today, I expect a slow day with a lot of position adjustments before the weekend. With a continued ideal forecast Sunday night, we should be eroding further next week. With a change in weather, and it would not take much, we would see what the market is made of. Just as sellers appeared in a big way when at my first resistance numbers, they should also appear at every chart resistance level.
I think the lows corn made this week will not be far from if not the bottom for the next week. Soybeans are more vulnerable to the downside next week if weather permits. Soybeans seem high priced to me versus corn, and soybean possibilities of getting a record yield must be on the table. With a big crop, soybeans are doomed from this price level. Soybeans have been Humpty Dumpty for at least 2 years now, but it is on the edge right now before the fall.
Prices seem right for now, and the bets made by the bulls and bears are now based upon the weather. Continued good weather will ensure much lower prices, hot/dry will rebound prices from what has been factored in for this price level. Weather futures are the trade idea. Perception and market sentiment based upon guesses, lets the market pendulum swing. I just want to take advantage of that, by waiting for the market to swing to a level I can risk little and be rewarded nicely when the number/chart level holds. I know where I am right (it holds) and when I am wrong (the number failed to hold), and that is impossible to do using fundamentals alone.
I continue to want to keep my known risk bear strategies for soybeans, same goes for corn, but the downside appears limited for now.
November soybeans had the correction I was looking for to the tune of $.53 ¾, $.01 ¼ from my $11.17 ½ resistance level I talked about in my comments for Thursday. The question I had was if the market could hurdle $11.17 ½ and try to fill the gap $.16 above there. My producers who wanted to sell, most were buying protection, did sell above $11.08 to $11.18. People who bought the market or reduced call spreads, or sold put spreads, waited for the market to get below $11 before doing so.
I think the range will be below average, I would tell you to adjust your position to make yourself comfortable going into one of many to come weather weekends. Compare Friday weather forecast at the close with the forecast Sunday night, if you are looking for direction to come from that. After last year I have no respect for weather forecasts, so I disregard the affect one might think the weather has, and stick to the charts because that is 100% factual based on everyone’s opinion in the past up to the last trade price. That is the only reality I can touch and feel.
I continue to say "I want to day trade futures without bias today but realize the market is extremely oversold and would be cautious when taking the sell signals down here, and risk $.03 in corn and $.05 in soybeans using a stop to protect any idea".
Want to know what I think for tomorrow and going forward?
The markets covered daily are 2014, 2015, & 2016 Soybeans and Corn.
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