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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 7/8/13

Jul 09, 2013

  

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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 unhinged (if we can rally for whatever reason). Hedge with a Pro and option expert who has been trading grains for 36 years.

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This report was sent to subscribers on 7/7/13 2:30 p.m. Chicago time to be used for trading on 7/8/13.

 

December 2013 Corn

After the close recap on 7/8/13: My resistance was 5.00, .02 1/2 from the actual high, and my support was 4.87, .03 (pivot was .02 in open outcry) from the actual low.

November Soybeans

After the close recap on 7/8/13: My resistance was 12.51 1/2, .02 1/2 from the actual high, and my pivot acted as support and was 12.27 3/4, .02 3/4 from the actual low.

All charts and numbers for 7/9/13 have already been sent to subscribers at 5:00 pm.  

December 2013 Corn

 
5.07 ½                      Downtrend Line Resistance
5.00                    
------------5.93 ½     Pivot                                                      
4.87          
4.80          
                                      
5 day chart....      Down from last week same day                                                                 
Daily chart   ...    Down                            
Weekly chart ...  Down                      
Monthly chart ...Down               5.80 is the 200 DMA
ATR 14                                          Max. Oversold 0%  

   

 

For 7/8/13: I continue to say "Bracket line is strong resistance now, and daily numbers support".

In my daily December 2013 corn numbers on Friday my resistance was .03 ½ from the actual high; my support was .04 from the actual low.  

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

 

November Soybeans 

12.51 ½       
12.35                                                                                  
------------12.27 ¾        Pivot           
12.20 ¾ FG                              
12.10 ¾                        near Bracket Line Support      
                            
5 day chart...         Down from last week same day                                                           
Daily chart   ....    Sideways                  
Weekly chart ...   Sideways                           
Monthly chart ....Up                   12.85 is the 200 DMA
ATR 20 ½                                 Ex. Oversold 1%

 

For 7/8/13: I continue to say "$12.51 ½ resists; gap at $12.20 ¾ supports.  


In my November daily soybean numbers on Friday my pivot acted as resistance and was .00 ¾ from the actual high; my support was .01 ¼ from the actual low.                  

7/8/13:

Grains: Looking at the July contracts rally and comparing prices, will NOT help you in pricing new crops.

Reality could be cruel to those in their own subjective reality. Think what you like but one and one is two, 30% hedged and now what? They "hope" (a terrible word to use when trading or hedging) to sell it for $5.50 now (it settled $4.91 ¼), when they could have gotten $5.70 two weeks ago taking risk off before the report and growing season. What do the services do that said when it was below $5.50 they would not sell for less than $5.50 or they will hold corn to 2014? Did they sell anything above $5.50 when they again had their chance at $5.70? How much have they lost in pursuit of $6?  They lost $.80 to make the last $.30, and what is worse is it's not over. Stress, how much is that worth? Their thinking is more than flawed. If they were a floor trader, they would know that you cannot lose more than you are willing to make if you want to survive let alone prosper. You better learn how to have an advantage, and a way of doing things that put the odds in your favor, or it is only a matter of time before the game is over. This is not 1 team wins the other loses; this is 1 winner for every 99 losers. Did they think we would have crop problems every year now one way or another?

Hedge services are supposed to take risk off the table, not tell you what they think the market will do and GAMBLE as they wait to see if what they think comes to be reality. I have seen these services over the years, and not hedging at $4 might be one thing (not to me, I accept reality and always want to have a hedge on to start) but not hedging above $6 is really a gamble.  It is one thing to have a demand driven market, it is another to get a weather induced shortfall to consume supply.   
 
My number one concern since I started this service 5 years ago was to protect risk of the prices going down, while pursuing higher prices, do it cheaply, and to lock in some sort of income to fall back on.

Hot dry is all the chance bulls have now. When I see Tom Skilling show the maps for the next 7 days and it does show a warm up that is welcomed and green (rain) all over. Anything can happen, but "things do what they until they do not it anymore". Crop looks great and ratings should continue to improve on Monday. 160 BPA is forecasted Friday by 1 analyst, more should follow. That would give us $4 corn if realized. 
 
I welcome a bull market and rally, like my producers I can make windfall earnings and they can make another record profit. But I am in reality, as a trader you must know how to control risk while pursuing profits or you might not be able to keep your membership and it would be turn out the lights to trading. Farmers might see a new wave of people turning out the light on the rental property, but worse, turn over the keys to what was their farm. I am sure the reality will hit them like Ripley's believe it or not. I have been long term bearish since September 2012 and continue to have the same stance. At no time have I been bullish, that would have taken place above $5.95, but I have bought back call spreads cheaply when at supports.    

What do you do from here? I am not going to recommend buying the $5.10/$4.80 put spread here (settled at $.17 ¼) because I did that every time we were near $5.70 the last few months. Many times my producers did at resistances, all the way down to $5.10, and that is where the friendly or bullish stance from $5.10 to where the crop insurance takes over (about $4.80) is seen. The main reason for leaving it at $5.10 was more so a "what if" going into pollination rather than any bullish fundamental. The other reason is the disputed planted acreage and crop losses due to late wet planting conditions. $5.10/$4.50 settled at $.29 ¾. This is another example for why you do things at a resistance to improve the downside cheaply, and something when at supports to improve the upside. It is not because you think we might rally or break in the next week or two, it is for expiration, or as a speculator a long term timeframe trade idea. For that reason my producers were active the last few days buying back call spreads for $.03 or less. That is much better than getting long or staying unhedged and watching the beating, and becoming a victim of the bears. Losing $.03 or $.23 is one thing, losing $.83 is another. If you sit there and say "I cannot believe it", well believe it. Losing $.83 in 3 weeks is unacceptable to me, and the pain might not end here. They are in the same position as when at $5.50 or $6.50 and they did little to nothing, they are still 70% unhedged, and some even buying some upside on top of being unhedged. Members, who threw up their hands and said I have lost so much money in this trade there is no sense getting out now, went broke. I always have said that it makes sense to get out of losing trades and use the remaining money to gamble on a new idea that has a chance to make money. Losing more money in a losing trade is insanity. I have taught and you have learned to have a stop or a known risk, which is risk management and will keep you from the disaster that unhedged producers or bulls are experiencing. Have a nice weekend will not be felt by them tonight. Being hedged is trading away some upside for the gain of protection and locking in income. Unhedged has every penny of the upside and downside and is free to do nothing, but it also gives you no control to secure income, and could be disastrous. Finally, people who buy memberships die like flies within 6 months, what makes a farmer think that they can predict the market or control risk any better?    

$5.10/$4.80 put spread was at $.10 or less when I recommended buying; now it is $.17 ¼ and the odds now favor you continuing to do nothing.  If not for the crop insurance, all would be in trouble if production becomes more than what is already expected. 30% of my producers did take protection down to $4.50 when at a resistance. As you know, all producers are the "captain of the ship" and steers their own course. Every day is a new start. The last 3 years have produced an amazing amount of everything to witness and forced to experience if you are a producer, but it will last a lifetime. It was like you went through the school of hard knocks but more than survived, you had record profits. If you have the feeling you can do better than you did or are doing, start now. If you did what was in your journal, then at least you did not fight with yourself and the possible outcomes were known and should be accepted. If you did not listen and execute what was in your journal, then you have a problem to work on.

As a whole, the worst has done very well so far and should feel good with what they have done, if not then start to make some improvements on executing your ideas. The ones who continued to take advantage of the chart when at support and resistance has fared the best, and the ones who were bullish or bearish but failed to take advantage of the market swings especially having a few times to do something cheaply, are the ones who paid for their bias. The people, who were bullish or bearish but did not allow for enough what if to the downside, are learning their lessons. One producer on Friday told me that the reason he is lifting all his calls mostly for $.02 and some less than $.05, was because years ago when I kept writing to take off call spreads for about $.03 and he did not, it came back to haunt him. If he did he would have made another $80,000 he said. That is a lot of $.03 buy backs for years to come. Live and learn.

When you loosen the screws the wheels can fly off quickly. It is never too late to learn how to tighten the screws. It takes time to have the strength to turn it, and each person has the ability to do so. Do not make it a struggle. If at first you don't succeed..... We all had training wheels on our bikes or something similar; you ARE the only person who can take them off.   
 
December 2014 corn is now at $5.20 ¼ which is $.29 more than the December 2013 crop. The December 2014 corn $6/$8 call spread settled at $.22. When you want to take some profits so you can resell if it rallies, you can roll down the $8 call to the $7 call for $.06 1/8. If you sold the $6/$8 for $.37, and you buy the $7/$8 for $.06, you have $.31 minus commissions for the remaining $6/$7 call spread. The $6/$7 call spread settled at $.15 7/8.

We do not know when the liquidation will stop, or when the farmers will sell more, but when that is over we will correct to the upside and test the gap at $5.11 once again. The chart tells me the closest support is $4.87, and after that $4.67 is next, but the strongest support is seen ... subscribe now! That is why I continue to recommend buying the $6.50/$7.20 now for $.02 if you still have it on, but I would rather roll down puts when only $.02 from full value. I would rather roll down my put for $.05 rather than buy a call spread, because even with a change of weather, I would rather be long from $5.60 than above $6 for the same money, yes I get less upside, but closer to reality at this time. The $6.10/$5.70 put spread settled at $.35 ½. I would roll down my puts and take money off the table and into my pocket.   

Old crops are different markets than the new crop as witnessed on the charts. You would not think they were the same commodity. I was aware of this common fact when I started at the CME and learned that pork bellies had a kind of old/new crop because frozen pork bellies have a time limit and cannot be delivered afterward. That helped in understanding that price is relevant to the contract traded, not what the other months are doing. Without inversions I ALWAYS take my cues from the front month. July contracts are strong and are nearing resistance levels again. They can and will do anything as I have said for months. I rely on my numbers to day trade, you can use them to market if you still have any old crop left, but I would not recommend a position overnight without a known risk strategy.

December corn finished in the basement and is really oversold now (1%), and my support numbers are valid and I am confident the first time down to buy at each of the supports and have a sell stop on each attempt to buy. $5.11 is all to expect now for a rally especially without weather concerns. It is there you can do something to get more protection that will be expensive, but not like what it costs now which is almost prohibitive.

November soybeans have the steep downtrend line for resistance this week, and support is found at the bracket lines of $12.04 and $11.87.

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

7/5/13:

Grains: Old crops remain strong compared to the new crops, and the market is like an hour glass, as time goes on and nothing changes, prices are coming down. Market has struggled for a long time to make the transition from current supplies to expected burdensome supplies in corn, and ample soybean stocks if weather continues to permit. Fundamentally both bull and bear will not know if their scenario will become reality for at least 2 months, and both camps should realize that neither has an edge, anything can happen. The more rigid they are in their stance, the more dangerous they become trying to defend losses if prices are going against them. My approach has never changed, take advantage of market swings when at significant chart levels, especially when you have a bias and the market is at a good level to reflect it. That is the time to reflect your thoughts, keeping it cheap. In this way you always have the "what if" taken care of, and will not find yourself emotional. If the market goes your way your position will reflect it, and if the market does the opposite or the unimaginable, your "what if" should have put you in a position to make money being wrong. Services generally commit to one direction or another at a time, so they will be entirely right or wrong.

We could be at $4.50 or $5.50 in the next 2 months, and by harvest $4 or $6+. Since the weather and perceptions is a moving target, producers should plan for either possibility. November soybeans could be $11.40 or $13.30+. The approach I take reflects all possibilities, is flexible, and controls risk at all times.  

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

 

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The markets now covered daily are Soybeans and Corn.

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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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