Sep 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 for 12/20/13

Dec 21, 2013

  

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This report was sent to subscribers on 12/19/13 3:30 p.m. Chicago time to be used for trading on 12/20/13.

December 2014 Corn


After the close recap on 12/20/13: My resistance .00 1/2 from the actual high, and my pivot acted as support was .02 1/4 (only .01 1/2 in open outcry) from the actual low.

March 2014 Corn

After the close recap on 12/20/13: My resistance was .00 3/4 from the actual high, and my pivot acted as support and was .02 (only .00 1/2 in open outcry) from the actual low.

All charts and numbers for 12/23/13 have already been sent to subscribers at 3:50 pm. 

December 2014 Corn

  
4.67 ¼ FG 
4.62 ½                               
------------4.57 ¾        Pivotal Downtrend Line 
4.52 ¾  
4.48 ¾  
      
5 day chart….     Down from last week same day          
Daily chart …     Down   
Weekly chart…  Down         
Monthly chart…Down                     5.14 is the 200 DMA
ATR 7                                                     Balanced 50%
  

 

For 12/20/13: "October high of $4.90 and the 2013 low at $4.50 could be the sideways trading range. Pivot of $4.70 is resistance". Downtrend line now acts as resistance again.  

In my daily December 2014 corn numbers on Thursday my resistance was .01 ¾ from the actual high, my pivot acted as support and was .01 ½ (only .00 ¼ in open outcry) from the actual low.                               


March 2014 Corn      
                                          
     
4.40 ¾                         High this month                              
4.35                            
-------------4.29 ½       Pivot   
4.24 ¼                               
4.20 ½                              
                            
5 day chart….      Down from last week same day                                                                    
Daily chart   …    Down                               
Weekly chart …  Down                       
Monthly chart …Down               5.01 is the 200 DMA
ATR 7 ½                                            Balanced 50%
     

 

For 12/20/13: $4.40 ¾ is strong resistance, 2013 low, then $4.10, and then the 2010 low of $3.98 ¼ major support (Custer’s Last Stand).     
         
In my daily March 2014 corn numbers on Thursday my resistance was the EXACT actual high; my pivot acted as support and was .01 ½ (only .00 ¼ in open outcry) from the actual low.                                                                                               

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

12/20/13:

Grains: After 2014 corn posted a new low for the year on Monday, the next 3 days were followed with a higher high and a higher low which is supportive. March corn had the same action but did not make a new low on Monday. We know these supports should hold until year end as we wait for the Jan Final report, but were not surprised when corn "jabbed" below the previous low for the year. $.15 off the low in March corn would be $4.33 ¾ and that is also $.16 off the high this month, and where my guess is for the year end settlement price. If not, I would think it would be lower, not higher than there. I said long ago once the $5.10 low of 2011 and 2012 is broken, we look to test the $3.98 ¼ low of 2010 before year end; we did get to $4.10, close enough considering we started our hedge at $6.50 100%. Most initiated 100% there, but the most bullish producer threw in the towel at $6.10.

Soybeans once again this week held the support of $13.11 as well as held the resistance of $13.53 ½. November stays in the middle of its sideways range. Nothing has changed.

Normal subdued trade next week in holiday mode. Our hedges are solid for 2013 as well as being 100% hedged 2014 corn at $5.60 with the most bullish producer throwing in the towel at $5.10. We are more concerned with not having to buy more protection than what more we will make if it rallies. 2014 hedge is easy to get upside back with 1 year until expiration. We will always make more money if it can rally, and with the 2013 hedge the ability to roll calls ... Subscribe now! This is how you reflect YOUR thoughts and ideas, and how you control your up and downside. 

Nothing more to say, no news will change the market right now, and your hedge is your peace of mind. Best of all the put protection was paid for with the call sold or will be on the roll to Feb. As always, you know how to improve your up and downside cheaply, do so when NEEDED, and can do when WANTed.

I still say "I prefer to take the sell signals today and risk $.03 in corn and $.05 in soybeans using a stop to protect any idea. Do not expect more than the average trading range, look for subdued trading, and expect more of the same until after the New Year".   

12/19/13:

Grains: It continues to seem like it is their bat, their ball, and they are controlling the game. Long beans short corn has worked well all year, as a matter of fact you could buy just about anything including dog food futures contracts and sell corn and you would not be bad off. Corn looks destined to be $3.50 by June weather permitting, and a year from today with a decent crop let alone above trend yield which would lead to $3. Problems will only bring it back to the lows of 2011 and 2012 which is our bracket line at $5.10. Over the years you have seen the power of my bracket lines, as well as how I draw them. You have learned over the years how one in the hand is worth more than two in the bush. You hedge to get that one in the hand, so you have money to eat, as you hunt for the two in the bush (the upside).

The bull has demand and tight current supplies to support the soybeans market, but that fundamental will soon be bumping up against new ample supplies coming out of SA in April. Like I warned you in corn, when the funds decide the party is over, their long position will turn into a short position and the market will act like corn has the last 16 months (that is how long we have been short corn, and still are). Who will take the other side of that trade? The end users, not a chance, look at the corn market, it will be no different.

With soybeans sustaining a 3 to 1 ratio over corn I am impressed, but in time this will be looked at as an opportunity to buy corn and sell soybeans.

I would rather be "Texas spread" and be short both soybeans and corn. Lines in the sand are clearly drawn, and the longer you have had my service the less you care about the fundamentals and care more about the price. Getting what you do right (your hedge) is the only thing you want to get right, not what the fundamentals are, not what Mother Nature will do, not what demand will be, no, you have learned like me as a trader that only the price puts money in your pocket or takes it away. Even if you did want to get those other things right, it comes right back to what we are doing with our hedge, they need a plan in place if they are wrong, and this most important factor of protecting losses they failed miserably. I have said to you since day one of this service, the only thing the fundamentals will do for you, is justify losing more money in a losing trade. I am not saying to not have an opinion of what the fundamentals are, you can use them to help you select the strike prices that will reflect those "what if’s", but finding those strike prices no matter if you use the fundamentals or not always comes back to the chart.

Next week is Jan option expiration and there will be cheap opportunities to take advantage of before then. If you have not... Cheap premiums show the small probability for corn to rally. Feb calls premium collected should have paid for your put spread in full depending on what strikes you selected. March calls sold will be "profit", if we get the chance to sell them.

I still say "I prefer to take the sell signals today and risk $.03 in corn and $.05 in soybeans using a stop to protect. Do not expect more than the average trading range, look for subdued trading, and expect more of the same until after the New Year". 

12/18/13:

Grains: Soybeans keep trying to take out the resistance at $13.53 ½ to no avail. Bulls certainly have had multiple times to take profits here, as well as bears being able to sell it. Last 4 weeks this resistance has held, as well as $13.11 support. That is what I call recent sideways action. Looks like that will be our range through the end of the year. November soybeans have been in a sideways range for almost 3 months. I do not look for soybeans to break out of that range anytime soon, and the chart bias indicates in time the range will break the downside. We would like to see higher prices; you know that can only help us, so it is your duty as the protector of risk to defend the downside which will cause losses. Not making money is one thing, losing money is another. You are in control now, you bought the protection you need, and have upside open that can easily get more for no cost when you roll. The day you think you need more up or downside, morph it.

Corn held the lows of the year, and could be trying to build a base of support this week. I still look for the market to end the year $.15 off the bottom, until next year when we grind lower once again. Feb calls gained about $.01 on the same strike Jan calls, and the market is cooperating with us hovering near $4.30. The higher the better when you roll to Feb selling corn calls. Also the closer we get to next Fridays expiration, the better.

Slow markets generally drag lower, and that is what I am looking for. Rallies are always to be sold in both 2013 and 2014 crops until the bear corn trend ends, or until the soybean sideways pattern trend ends.

My price forecast from now until year end is still intact. I still say "I prefer to take the sell signals today and risk $.03 in corn and $.05 in soybeans using a stop to protect. Do not expect more than the average trading range, look for subdued trading, and expect more of the same until after the New Year".    

12/17/13:

Grains: When I look at the fundamentals, I do not see how anyone can think corn will go higher in the next 6 months without a production shortfall. I am bearish and will remain bearish until something changes. Same for soybeans, longer term old and new crop 2014 soybeans should buckle under SA and next year’s US production, so as time goes on so does the lower prices as seen in the 2014 crop. The tightness seen now has been factored in being over $1.75 in premium to the November contract. In time if held long enough, it will be worth what the November is, just like $8.49 corn is now worth $4.20. It is not wine, you cannot say this is 2012 corn and worth more than 2013 corn. So that is what you see in the Jan beans, short term tightness that will disappear in time and the transition from too little supplies to more than adequate. In a year or two it can be as burdensome a supply as corn is getting to be. 

2014 corn did make a new low for the year, and we will see if it can hold, and then we will look for a $.15 or so bounce to end the year. It has more chance to go lower, and when the March contract makes its low and my guess would be the Dec low of $4.10 that will be it for this year and close out the year at $4.25. If things change and I think different, I will let you know. When corn can get above a previous month high, it might have something going for it. I do not need to know the reason.

Jan soybeans found resistance as I had said using the pre-report high of $13.53 ½ but my resistance of $13.47 was spot on being only $.03 ½ from the high on Monday. I like selling that but when numbers are that close I like my stop to be above $13.53 ½ where I am proven wrong (resistance numbers did not hold).

We know where resistance is in Jan soybeans ($13.53 ½), and we know support is $13.11, so $13.32 is the pivot of the two. I look for more continued sideways action that eventually will probe the downside and test the uptrend line at $12.80 next. I am waiting for more premiums to decay before wanting to roll or sell cash, unless we are above your put which allows you to market at any time. There is premium in the put spread you sell, and cost little to buy back the call, and you should have made money since your Jan hedge was put on. There are many things you can do to reflect your bullishness or bearishness when you roll if you are planning to keep soybeans after the Jan options expire.

You are long where your put coverage ends, imagine being unhedged. Why worry about being long above your put strike if you are now worried about being long where your protection ends? If your thoughts are different now, morph it, and you can get more protection cheaply.

Do not look for much in holiday trade. Know what you need or want to do, wait for the opportunity, and execute it. If it does not give you an opportunity, have a line in the sand to throw in the towel and save yourself from further beating, and you can pick a match when you want to fight again. My strategy allows for "at the money" upside if it can go higher, but provides insurance if it goes down instead.  

I still say "I prefer to take the sell signals today and risk $.03 in corn and $.05 in soybeans using a stop to protect. Do not expect more than the average trading range, look for subdued trading, and expect more of the same until after the New Year". 

Hedge Ideas: 12/16/13

I said many times that I have no problem looking to sell at a higher price; I have a problem risking more money than I was willing to make. You have learned this, as well as having lines in the sand price wise and not concerned with your fundamental analysis. When you are being choked, you want it to stop before you die, not a second afterward when it does you no good.

Every month holding corn has been a bloodletting and is no surprise. Price action has given bulls no reason to think the trend would reverse, but yet bulls must have been "hoping" for a $.50 rally to unload. Trouble is every month has seen a lower high and the longer you hold it waiting for the trend to change, the more you lose than what you were going after.

How many times in my service have I said that you can sell now because in the future the rally might only get you what you can get now. With the proper strategy that you are in fact using, you are able to have upside right here while you have protection. If it is cost, shop option prices and find what fits your NEEDS and then your wants.     

When you make a decision, never look back and say it was the wrong thing to do, because the day you think that is the day you should change your position. Never should you even think the words woulda coulda or shoulda because now after all these years it does not just mean you are not doing what you are supposed to do, it means you are the old lady at the track who has lost touch with reality.
If the market continues lower it was good to have rolled corn to Feb, but unless we go too much lower it is still a good idea to capture more money. Buying back cheap Jan calls would be a good way to reflect your desire for the upside, and then sell the Feb call if it can rally. Realize, what you do not sell is what YOU are buying. If you are not in conflict with yourself decisions are easy, when you cannot decide, "Goldilocks’" it. If there is a "next rally", look at buying protection down to $4.10. If friendly I would rather not buy more protection but I would sell as much upside away as I can when I roll.

Jan soybean hedges are in place and most only allowed $.10 or $.20 upside electing to have sold a Jan call for the second time (took profits the first time). In 2 weeks you will need to roll to Feb calls and puts unless you think you will need more time, then ...

November 2014 soybeans I have recommended for a long time to be hedged, if you did not you have your own plan, follow it, and never put your head in the sand on any idea, always have a risk when going after a reward. Hedging does not take away rewards, but takes away some risk. Let me know, I will look over your shoulder and help you price it when you are ready.

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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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