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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 December 2013 & 2014 Corn for 9/20/13

Sep 20, 2013

 Hedging December 2014 Corn & December 2013 Corn for 9/20/13


 

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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 9/19/13 3:30 p.m. Chicago time to be used for trading on 9/20/13.


December 2014 Corn


After the close recap on 9/20/13: My pivot acted as resistance and was 4.97 3/4, .00 1/2 from the actual high, and my support was 4.91 1/2, .01 3/4 from the actual low.

December 2013


After the close recap on 9/20/13: My pivot acted as resistance and was 4.59 1/2, .00 1/2 from the actual high, and my support was 4.45 3/4, .04 3/4 from the actual low.


All charts and numbers for 9/23/13 have already been sent to subscribers at 2:30 pm. 

 Numbers for 9/20/13 were:

December 2014 Corn

5.11 ½ FG            
5.05 ¼ FG            
5.04             
-------------4.97 ¾        Pivot     
4.91 ½                          
4.83 ½                         2013 Low                                                                                                            
 
5 day chart....     Down from last week same day         
Daily chart ...     Sideways   
Weekly chart...  Down         
Monthly chart...Down                     5.45 is the 200 DMA
ATR 9 ½                                                    Oversold 34%
   

 

For 9/20/13: I continue to say "Downtrend Line near $5.17 resists, 2013 low at $4.83 ½ supports". $5.04 ¼ is the pivot (now resistance) of those two numbers.      
   

New low for the run and closed higher bodes well for another up day on Thurs. Indeed it did.                           

In my daily December 2014 corn numbers on Thursday my resistance was .00 ¼ from the actual high; my pivot acted as support and was .01 ¾ from the actual low.                                                                      

 December 2013 Corn  

                           
4.68 ½                             
4.63 ¼                             
-------------4.59 ½        Pivot         
4.55 ½                            
4.45 ¾                         2013 Low  
4.30 FG 


5 day chart....      Down from last week same day                                                                  
Daily chart   ...    Sideways                               
Weekly chart ...  Down                      
Monthly chart ...Down               5.39 is the 200 DMA
ATR 11                                             Oversold 34%
    

 

For 9/20/13: I continue to say "$4.85 is strong resistance (near new downtrend line). The 2013 low supports".      
New low for the run and closed higher bodes well for another up day on Thurs. Indeed it did.                          

In my daily December 2013 corn numbers on Thursday my resistance was the EXACT actual high; my pivot acted as support and was .01 from the actual low.                                                                       
         
2012 low was $5.11 FG, 2011 low was $5.10 (now resistance), and 2010 it was $4.           
        

 9/20/13:

Grains: Soybeans opened on the high and worked its way lower throughout the day, and only bouncing off the key gap support that has yet to be filled. I know you read from everyone that the gap was filled at $13.31 ¼, but as I have taught you the gap is the settlement that created the gap not the low of the day it gapped higher. Filled the gap for me is actually filling the gap by trading the actual price. 40 years of personally charting myself, I have found without a doubt in my mind the gap is settlement and works much better for me year in and year out. 

What is important is the fact soybeans have had good news fundamentally, but failed to hold its rally. Only the funds know if they are going to buy more contracts and bid the market higher, but the price action tells me the bulls are losing their stomach for pressing the upside as we get closer to harvest. Maybe farmers are looking at the current price and realize that we have only been above $13.30 the last 4 weeks, and a few months last year during the drought, and the contract high made then was $14.09 ¾, was just tested 3 weeks in a row, and we backed off and have held the gap support since then. We know there are sellers at $14 no matter the reason it gets up there. We sold $14 or improved our hedge every time, because you have learned not to "cheer lead" the market higher where you should be selling it. Near the gap support of $13.28 we improve our upside, and for no other reason but to sell once again if it can make another run to $14. If not, we always keep this kind of idea cheap, for $.10 or less, and have a known risk. 

No matter if I think I know the fundamentals, or the last 2 years where I have clearly have said that fundamentals are a fool's game when the "top 10 analysts" cannot agree within reason of each other, and seem to adjust their predictions more on the price action. Are they still talking $10 corn? Are they still recommending not selling it under $5.50 and throwing it into the bin until 2014, like that is when the rabbit will come out of the hat? Price is always the most important factor, because no matter the reason, it gives you or takes your money. Since last September I have been bearish soybeans and corn, and have been 100% hedged since September 2012 at $6.50 for December 2013 corn, and $13.40 November 2013 soybeans. When soybeans were making lows for 2013, we bought back call spreads that we sold and took profits leaving only pennies on the table, and rolled down put spreads taking profits there too, and by doing so we got some of our upside back. It did not matter if you were bearish like me, or bullish, we were able to sell November 2013 $14.50 calls for $.30+ and the $15 calls for $.20, and would still be happy if we "lost/cash sell" it at that price. We are basically long above $13.60 now, and protected all the way down to at least $11.40. The best part is that YOU are in control, not me; you reflect your appetite for risk, and can reflect your bullishness or bearishness.

Control is what it is all about. You cannot control the market but you can and must control what you do. You have learned through my simple strategy, which you can control what downside you want to protect, and what upside you seek. You learned options are rights, not obligations, and so you have the right to morph your position when need be. You know exactly what to expect when you look at your position, you understand fully where you are participating in the market, and what prices you are not. The unhedged out there have absolutely no control, they will either be victims of their own inaction and the market continues lower, or rewarded because the market rallies. Trouble with that is, they never seem to sell it when higher either, it either gets to their objective and they do little, or they do nothing and move the goalposts farther away. Stress, and the long road back up, is not helped by bullish talking points. My charts lead our hedge which is based on price, but my bearish talking points have always been that the more the farmers hold onto their grain, the more bearish it is in the longer term, and it is bearish when the bull's main fundamental is based on continued production shortfalls.    

Nobody knows production, but each of us is entitled to a guess, so my guess is the same as last year, when every one of my producers went into their fields the day before combining and made a guess, and every one of them was pleasantly surprised with more BPA. I believe it will be the same this year. I continue to be bearish, and with decent production in SA I will continue to be. With a good growing season in the US next year, I will continue to be bearish until much lower price levels are seen.

I continue to recommend getting out of the put spreads that have captured all but a few cents of its premium, because that last $.04 is all you get. It can do much more harm than good, and there is only 9 weeks remaining until the December options expire, so this spread will move slowly for you, but quickly against you. I still recommend if you need or want more protection beside your insurance, buying the $4.60/$4.30 spread instead. It settled at $.11 ½ but has $.18 ½ to be captured. You have different odds, but much less risk and more reward. This totally depends on you and if you still need to hedge. All who started last year have already removed their corn hedge and have $1.10 or more in their pockets. Now it is revenue insurance that protects, no reason not to take the hedge off. 

We are also 100% hedged 2014 corn and soybeans, but some of my producers have yet to do any, half have hedged 100%. Everyone is self directed and in control, I am here to answer any question on futures or its options. All you need to look at is this year's performance on hedging from the experts and ask yourself, do I want to continue to listen to more of what got me into this position? Could you do worse than them? If the answer is yes, that means you are 100% unhedged, or should I say, you have more unhedged than they do. I was brought up to try to learn what I could about something before I "wager" my money on it. That includes opening a business or buying anything to sell at a profit. Take responsibility in what you do, and the most important thing to a producer is how they control risk as they seek higher prices and a better basis. Anyone who was seeking higher corn prices and watched it go to $6 as they were trying to sell it for $7 is one thing and I could have been one of them, but to do NOTHING and let it go to $4.60 is ridiculous and incompetent if your job was to secure income for the farm.

I continue to say if you are not 100% hedged, get a line in the sand by doing so. 5 weeks from today the November options expire, and 9 weeks from today the December options. October 11 report is in position to be a mover and shaker, so adjust your positions by then, and should get out of any corn put spread more than $.30 by then.     

I continue to say "I am bearish longer term, but would day trade without bias risking $.03 ½ in corn and $.06 in soybeans using a stop to protect any idea".     

9/19/13:

Grains: Soybean bracket line was perfect support, and the gap has yet to be filled. It does not surprise me that the line has held the last 4 weeks, but the gap from Friday at $13.82 is now the objective of the next rally. Gap at $13.28 supports, gap at $13.82 resists, and the pivot of those two numbers is $13.55. Only a close above the contract high would signal higher prices to come, but until then that price is major resistance. On the other hand, if $13.28 goes I would look for the next strong support at $12.80. What drives the market to those prices is irrelevant to me, what is important is the fact it is at an extreme and I can take advantage of it cheaply. The price gives or takes away money from your pocket, and the fundamentals might be factual but does not help discover what the price is or will be in the future.

Does not take much to move the market on this low volume, but the market is not close to trading its ATR and that speaks for itself. The bull case comes down to production shortfalls, and it is on their shoulders to prove. I do not like the fact that the funds have a big chunk of the bull position in soybeans, and it bothers me that farmers are holding on to their grain that eventually no matter the price must be sold in the future. To me it is really foolish to only look at the reward you seek and make that a priority, instead of the priority of locking in some protection as you seek higher prices. That not only goes for hedging, but risks must be controlled in speculation too.

Soybean action is still decent, but it looks more vulnerable to further downside with fund liquidation. Corn looks terrible, and the "pin action" in there is pathetic at best. December corn bulls can look for a retest of $4.75, but it would only be a corrective action before the low will be tested once again. I am looking at the lows to be taken out as we get closer to harvest, but with bullish news yesterday and the failure to close higher, tells me the market is weak and could make new lows sooner rather than later. Stock market fever takes away from the commodity play, and unless we get a shortfall in SA, money will go away from the grain market. Speculators and funds love to play the long side, and with those players not interested in trading a sideways to lower grain market, that is not good for the bulls that remain.

Make sure if you have put spreads nearing full value, that you do not let the market get above $4.75 without exiting some of your spreads. If you get out here you could stay in the rest above $4.75, but if it got above the downtrend line at $4.85 I would be exiting half of what I have. If you need the put spreads for protection I would keep them, but if you have revenue insurance then I would only have a $.30 $4.60/$4.30 put spread that settled at $.12 ½. Risk that to get $.17 ½ minus commissions, and let the insurance do the rest if this applies to you. This allows you risk little and are protected nicely until harvest. Since there is not much time until expiration, the slightest rally will make it cheap, and as it gets "in the money" it appreciates quickly.

2014 is not going away, and everyone who hedged already is not concerned with it right now, and need only worry about the crop coming out of the ground. Imagine, if others are not fully hedged in 2013, chances are not much was done for 2014 too, so if the toothache of 2013 subsides, then they will feel the pain coming on another tooth that could really hurt in 2014. You know what it was like in the past when you watched yourself unhedged completely and the market keeps going down, and you know what it is like to be fully hedged and the market rallied and you made more money, as well as this year when you locked in protection and income already, have next year hedged too, and really relaxed no matter when the market rallied, or when we went down. The strategy allows you the ability to control emotions and think more clearly, and the most important aspect of a hedge, protecting income.

Lastly, always remember what you do in your hedge, whatever your position is, it is for EXPIRATION, so imagine what your position will do if we are $.50 higher or $.50 lower from here, or any price in between. Whatever you do, and whenever you adjust it, it is for expiration, not what the market will do in a week or a month. Be honest, and write down the price you think we will be at 1 week from today, 1 month from today, and at option expiration, and whenever your thoughts change, write it down below your last prediction. You will see how often you change your thoughts and ideas, and if your position reflects what you think. Keep it real. When you write down what you think the futures will be, it is like betting before the race or game begins, anything else is like an old lady (no disrespect intended) at the race track and tells you she knew the horse was going to win, but bet only $5 on that horse, and $25 on another horse in the race too. Just like a market reporter, they tell you what happened after the fact. Hedging and trading the future needs to predict before, not after the fact.

My service has been hedged for 2014 for 6 months now, but unhedged producers should have a plan and not let the market go down more than it already has. Have a plan, whatever it is, and execute it.  

I continue to say "Look at buying back short calls which are getting cheap now, and resell if it can rally. I am bearish longer term, but would day trade without bias risking $.03 ½ in corn and $.06 in soybeans using a stop to protect any idea".     

9/18/13:

Grains: FSA cutting acreage this morning was a bullish factor that sent prices sharply higher in open outcry, but it did not take long for the market to take advantage of the rally to sell the market. This resulted in the market coming down to test support, and totally disregarded the "news" of lower production. This is another example of what I say year in and out; it does not matter what made the market rally or breakdown, I just want to take advantage of it. Buying today might have seemed like a good idea, but in a few hours you were losing greatly if you did not use a stop or known risk strategy. So you bought into the idea that there is less grain coming then thought, and absolutely nothing changed in 2 hours except one thing, the price! So how did the bullish fundamental help you to make money or improve your hedge? Did it reduce your risk? Was the market wrong for not closing higher? Remember this, the market is NEVER wrong! It does not read headlines, and it need not trade in accordance with its underlying fundamentals.

The market is a vehicle for price discovery, and the market will swing past its "fair value" both to the up and downside as well. That is where real value for me is. When things are at prices that have not proven its sustainability, this is where I can risk the least and make the most, and if I buy time and control risk with an option strategy, then I am in a position that is unemotional, and has the time for the chart to prove my idea right or wrong.   

Everyone else can only talk fundamentals because that is an "opinion", but it seems like they really do not have much skill in participating in the market. I would talk fundamentals if it could help, but instead I teach you how to trade or hedge the market without any knowledge fundamentally or not. I am teaching you to be self directed, what makes you think you cannot earn more than any broker or service? Let us face the facts, when hedge services are not 100% hedged long ago, and instead on concentrating on hedging what is still needed, they recommend buying call spreads, or worse, selling a put to buy a call, so how is that reducing risk (hedging) when you are buying the upside? Is this was for a speculator it would be one thing, but for a producer it adds risk not take it away. Seems like that they are more worried in hedging and the market rallies, than worrying about losing more money in a market going down. But the job of a hedge is to protect the downside so you do not worry about losing more of your income. Making more money is one thing, but losing money is another.

Look at the reality of the task, if it was easy everyone would be trading for a living, but yet in my 40 years I am hard pressed to say 1 out of 100 people make money trading. One or two years do not prove success, but you are on the right road. It only takes one idea and loss of control to bankrupt you. Discipline must be in control and can never be neglected. Let me compare it to the real world of sports. Millions dream of making it to the pros. You are a star in high school, you play 4 years in college and make it to the pros, which mean you are now playing amongst the best in the world, and even if you are "rookie of the year" you have so much more to learn playing on a professional level. This is what experience does, gives you wisdom. Otherwise, you hit the wall; you cannot do better no matter how hard you try. What I am trying to say, is that out of millions that play sports on various levels, only the cream of the crop, the best of the best, can make it on the professional level. Professional, means making money from what you do, and this applies to trading. You can trade like you are going to Vegas, on allocated money to trading, or betting football, or stocks, or whatever, its taking part of your disposable income on a game of chance. People who make a living trading can call themselves professional, but just like in sports, if your game starts to decline your days are numbered.

So what makes you think you can make it to the pros? And if I were a producer and looked at how much money your peers or services that you went along with THEIR ideas, made their risk YOUR own, I do not think if you were self directed, not listened or read anything, and just looked at the price and said I will hedge $1.00 higher or $.50 lower but I will put a line in the sand, you could not do any worse even if you tried. We hedged December 2013 corn at $6.50 last year, and soybeans at $13.20, so the unhedged lost $2 going after a random price they said corn is worth. They already could have locked in a high income, instead now they are victims of their own inaction. Yes, soybeans are a little higher than where we hedged, but we already took advantage of the rally by adding income. The difference is like in corn, if it goes down we have some protection. My producers and subscribers have learned how to use charts as a roadmap, learned how to control risk, learned the proper way to use options for hedging, and are now self directed. Now you are a rookie in the pros. Every year you get better. New subscribers are learning, but do not take too much time getting the basics.     

Talk about fundamentals now, I'll leave that to the others who trade off that. I continue to say "Look at buying back short calls which are getting cheap now, and resell if it can rally. I am bearish longer term, but would day trade without bias risking $.03 ½ in corn and $.06 in soybeans using a stop to protect any idea". 


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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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