Apr 23, 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 Soybeans & Trade Ideas for 1/2/14

Jan 03, 2014

 

 

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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 40 years. 

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This report was sent to subscribers on 1/1/14 3:30 p.m. Chicago time to be used for trading on 1/2/14.

All charts and numbers have been updated for 1/3/14 and sent out at 4pm.

December 2014 Corn

In my daily December 2014 corn numbers on Thursday my resistance was .00 ¾ from the actual high, my support was .01 ¼ from the actual low.                                   

 

March 2014 Corn

In my daily March 2014 corn numbers on Thursday my resistance was .00 ¼ from the actual high my support was the EXACT actual low.                 

Charts and Numbers for 1/2/14:

 December 2014 Corn

           Use the same numbers as used on 12/31/13
 
4.55 ¼ FG 
------------4.51 ¼           Pivotal Downtrend Line  
4.47 ¼                           2013 Low
   
   
5 day chart….     Down from last week same day            
Daily chart …     Down    
Weekly chart…  Down         
Monthly chart…Down                     5.11 is the 200 DMA
ATR 5 ½                                               Ex. Oversold 7%
  


         

In my daily December 2014 corn numbers on Tuesday my pivot was .00¼ from the actual high, my support was .02 ¼ from the actual low.                                     

March 2014 Corn  

        Use the same numbers as used on 12/31/13
                        
4.27 ½ FG                         
-------------4.24       Pivot     
4.20 ½                               
4.18 ½                    2013 Low                                    
                            
5 day chart….      Down from last week same day                                                                    
Daily chart   …    Down                               
Weekly chart …  Down                       
Monthly chart …Down               4.96 is the 200 DMA
ATR 6                                             Ex. Oversold 5%
   

    

         
In my daily March 2014 corn numbers on Tuesday my pivot was .00 ½ from the actual high my support was .00 ¾ from the actual low.                         

2012 low was $5.11 FG, 2011 low was $5.10 (now resistance), and 2010 it was $4.     

 1/2/14:

Grains:  Handwriting has been on the wall, no surprise with a decent crop we would be at $4.50 at harvest, and lower as time goes on without a shortfall in production. I have said and will remind you, this summer we will be at $3.50, and next New Year we will be at $3 weather permitting. Mother Nature holds all the answers, but I would completely throw out any guess by any service that predicted a shortfall in 2013 and yet did nothing to protect them or more importantly, you. You no longer rely on any service or anyone to make decisions that you should always have control over, your money. They had 3 big weather events that they bet the farm would cause a shortfall, drought, too wet, and then drought again. Where is the shortfall? At what point in time did they realize they have been totally wrong? How did they, these hedge services or speculative bulls, protect them from losing more on their idea than a reasonable amount in relation to the reward they went after? Having a plan for rewards are one thing, not having a plan and being wrong can lead to bankruptcy. When the unimaginable happens is when you make windfall profits, or lose everything.

Shoe is now on the other foot, end users will surely not want to take your grain now that supplies are large. Your basis was over the futures, and the futures were discounted because the market knows well like I do, that high prices cannot be sustained forever. Speculators and farmers lose track of the future, and tend to stay in the here and now.

I have been saying that my producers have witnessed their soybean basis continue to erode with no "bounce", and that weakness in cash is a good indication that the premium for old crop soybeans is fading at $13+. The reality of what is to come is in the November 2014 price and price action. It made a new low for 2013 to end the year, not a good sign for the bulls. I mean let’s face it, what fundamental is going to justify you losing more money in a losing trade, or what’s worse is that you are an unhedged farmer and watching your income for 2014 go out the window. Yes, we have been 100% hedged 2014 it seems forever since the original hedge at $5.60, but now it is a matter of staying ahead in our protection as production comes in good in SA and we proceed without a weather scare. That scare should happen, it usually does so the summer is where you will see us rally, but like I said in 2013, we might only rally to where you can sell it today. Yes, we will want to take off all our cheap upside that has little to gain and a lot to lose before the summer, and it already has done its job collecting premium.

Business decision, but never make the mistake that there is no risk until you hedge it someway. I worry about losing money, making more than your original hedge is never a problem. My producers know that when they are sending in money that is a good thing, more money can be captured, and we can get away without buying more expensive protection that we would need to do if the market went down instead. This year their accounts swelled. They did a great job in the bear market of 2013, with an original hedge at $6.50 last September. Old crop soybeans so far have gotten away from the bears teeth. $13.53 ½ was the high for 2013 made on Feb. 2, backed off and made a new low for 2013 at $11.69 on Aug. 7 before staging the best 3 week rally I have ever seen to $14.06. Now that high at $13.53 ½ has capped all rallies since then. $13.53 ½ was the high for December. High in 2012 was $14.09 ¾. And the November 2013 contract got to $14.09 ½. These chart levels and numbers are not coincidence, and clearly shows the premise to my approach for price discovery, and for price objectives as well as lines in the sand for risk.

I expect corn prices to erode before the report, and soybeans more likely to test the uptrend line than test the resistances again.  

I want to trade without bias and risk $.02 ½ in corn and $.05 in soybeans using a stop to protect. 

12/31/13:

Grains: ATR of $.06 in corn tells me not to expect too much movement one way or the other, and with the report less than 2 weeks away, there is no incentive for taking a position before the report. Unfortunately for the producer, he is long whatever is not sold or hedged. The mistake we never make is to think just because we have not sold it we can look for higher prices without risk. We take care of some risk by hedging, and THEN pursue higher prices knowing that if the market goes down instead, we protected ourselves when wrong about higher prices.

Like I have said many times the last few months, owning corn is like owning a wasting asset, and as long as production in SA has no problems and the US continues to have no current subsoil moisture problems, lower prices are on the way.

We have been hedged since $6.50 for current old crop corn, and $5.60 for 2014 corn, so now it becomes a matter of trying to keep our hedges current and keeping what we got. We did well with the 2013 crop already banking our hedge, and now we have ... Subscribe Now!

With 2013 and 2014 corn as well as November 2014 soybeans, they are pennies away from making a new low for 2014. The only market defying gravity is old crop soybeans. I thought the market would be $.15 off the low to end the year, but that was wrong, no problem. Instead of treading water until the report, prices are gasping for air when it can. The underlying fundamentals of more supply than demand is the problem with the market, and it will take a shortfall to stabilize prices, or much lower prices are needed to spur demand to actually use this burdensome supply.

Now the unhedged and bulls are leaning against $3.98 ¼ thinking what is another $.25 in losses after losing $2? The answer is $.25. It was not long ago when farmers were content to make $.25 for the year, now it seems they are content to lose that. This all goes back to what I have been saying, no what you are doing and why. By not having control you have no say in your fate.

Nobody knows what the market will do until the report comes out, and nobody knows what it will do afterward, so know what you are doing and why, and you have learned exactly that. The reason you hedge is to reduce risk, and that is the why. Knowing what you are doing has also been solved since you have learned a strategy to protect the downside as you pursue the upside. You have learned how to use the charts as a roadmap, helping you determine what up and downside potential the market has realistically. That with many other things has helped you to know what you are doing.

I expect another day with little volume, and my producers being quiet having the hedge they want. You have the luxury to keep an eye on your New Years plan instead of what the market is doing. I want to trade without bias and risk $.02 ½ in corn and $.05 in soybeans using a stop to protect.

                                              


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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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