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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.

January Soybeans & December Corn Daily Numbers & Trade ideas for 12/5/11

Dec 06, 2011

This report was sent to subscribers on 12/2/11 7:30 p.m. Chicago time to be used for trading on 12/5/11. 

January Soybeans 

After the close recap on 12/5/11: My resistance was 11.46, .02 1/2 from the actual high, and my support was 11.28, .06 from the actual low. 

December Corn 

After the close recap on 12/5/11: My pivot acted as resistance and was 5.90 1/4, .03 1/4 from the actual high, and my support was 5.80 1/2, .00 1/2 from the actual low. 

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January Soybeans


11.58 ½
11.46
--------------11.37 Pivot
11.28 FG
11.11 ½

5 day chart... Up from last week same day
Daily chart .... Down
Weekly chart ... Down
Monthly chart Up $13.22 ¾ is the 200 DMA
Average Trading Range 24 ¾ Balanced 46%

Jan beans 12 5 11

For 12/5/11: I continue to say "Bracket line is now support, Wednesday's high resists, and last week's low supports. 

Notice how the bracket line was perfect support on Wednesday.

In my daily soybean numbers on Friday; my resistance was .01 ½ from the actual high; my pivot acted as support and was .01 ½ from the actual low.             

December Corn

6.09 ¾
5.98
-----------5.90 ¼ Pivot
5.82 ½ FG
5.80 ½ XX

ADD $.08 ¼ to these numbers to get the March #'s
5 day chart.... Up from last week same day
Daily chart ...... Down
Weekly chart .......Sideways
Monthly chart .... Sideways 6.55 ¼ is the 200 DMA
ATR 16 Oversold 19%

december corn 12 5 11

For 12/5/11: Last week's high of $6.09 ¾ is resistance and then the downtrend line, bracket line supports.      

In my daily corn numbers on Friday; my pivot acted as resistance and was .02 from the actual high; my support was .00 ¾ from the actual low.
 

12/5/11:

Grains: Spot on numbers! I think exactly the same as I did on Friday, it could have been written for this weekend edition. Since the fundamentals are not in play, it makes it easy to trade the numbers without bias except the bias the charts give me. Soybeans since 8/31/11 have taken a $3.70+ beating for a reason; there are more sellers than buyers. Bracket line once again provided support while without it you would have little to go on to find what could stop the market from going down. The trend is down but the action last week sets up more follow through buying early in this week. Another failure at $11.46 will quickly warrant another retest of the bracket line. If the market can hurdle $11.46 it will face strong resistance at $11.58 ½ where I would be a willing seller. 

If December corn can hold the $5.72 ¼ level, it would be a quadruple bottom on the weekly and monthly charts, and that what be the same as a giant "line in the sand" for bulls and bears alike. No matter if I am bearish I would still take buy signals for day and swing trades, but only look for the same $.27 bounce that was produced last week. I said last weekend "December corn posted its lowest close since March, and is not far from $5.72 ¼ now. We could start the week higher and test $6 before testing the low, but unless the market recaptures $6.30 the bears are in total control. How good are the fundamentals of supply and demand doing for the bulls now"? Unlike the soybean market, corn has established a sideways trade since 10/3/11 between $5.72 ¼ and $6.66 ¼ with $6.19 ¼ the pivot which happens to be where the downtrend line starts this week. 

Soybeans can support corn, or corn could help drag it down, and certainly the bigger picture world economic situation on any given significant move will influence commodities prices. Nobody can tell you what the market will do, but I know what I want to do because of the price parameters derived from my charts.

Last Friday December 2012 corn left a gap at $5.35 ½ which is now key support. Key downtrend line resistance starts the week at $6. $5.61 capped the rally last week, and will be good resistance this week too. I think the most supportive thing is that 2012 is being bought and selling March corn against it. The spread came in (narrowed) $.05 ¼ on Friday alone. When the spreading is done the December will more likely go down in lockstep with March for the most part. Producers should be hedging one way or the other to protect the downside, my strategy allows for the upside you want to be built in on entry. Below $5.35 the market is in big trouble, $6 would be a gift, $5.67 ½ pivot was not reached last week. 

I want to continue to trade the market without bias and risk $.05 in corn and $.07 in soybeans using a stop to protect any idea.         

 

12/2/11:

Grains: Spot on corn numbers, and accurate soybean numbers. More of the same action, market finds sellers when market is at a resistance and turns the market down on the day. Market continues to find sellers, and at the same time the market has rejected last Friday's closing price which acts as a gap support. New subscribers should know that I stress the importance of gaps and have found them most helpful in price discovery (another way of saying how to discover where support and resistance will be) since I considered myself a "chartist". 

After the open on Thursday, it only took about 10 minutes for option premium to take another hit in premium even though the market was near the highs; this makes me a more than willing seller against the resistance. It makes it a harder sell if premium was going up, but I ALWAYS take my cues strictly from the numbers and chart location, but might do more or fewer contracts when I consider the implication from what option premium is doing as well as outside markets.

The January soybean downtrend line is now near $11.60, and the gap at $11.06 ½ near the low proved this week to be support, would make the middle or "pivot" around $11.33. I am thinking that after the unemployment report today unless the "sky is falling", risk taking could bring some "bottom picking", but now that I know the EU meets next Friday, that would still put a lid on any rally until then. I can make a case for both the bears (sellers are there every day evidenced by the poor closes off the day's high) and the bulls (that the gap support was tested daily and held). 

Same chart for corn as soybeans. $6.20 is the downtrend line, and $5.82 ½ gap support. $6.01 ½ is the pivot. Same thoughts as before for both soybeans and corn, so I want to continue to trade the market without bias and risk $.05 in corn and $.07 in soybeans using a stop to protect any idea.         

Lastly, I want to remind new producers that the reason to hedge is to market your grain, which means to eventually sell it. When you sell it, you should not want to "buy your grain back" because it is not "your grain". This reminds me about a racehorse that was the greatest horse I ever owned who was royally bred and acted as such, and when I lost him in a claiming race I wanted him "back" so bad. The trouble with the horse was he had a problem that could cause him to go lame and could need 6 month layoffs to heal, and the horse had been well known going down the ladder. I had to decide if I wanted a pet that could make money but would eventually "breakdown" before I would get the value out of him in earnings that he was worth while still a winning racehorse. If I buy him back and move him up in company so nobody else would claim (buy) him, he would need to race hard just to get a check let alone win. In the company I raced against and lost him, he could fall down and get up and still win, so as long as nobody claimed him, I stood near the winners circle so I would not have to hurry to get my picture taken. Pet or Business? Business was how I conducted my 2 horse stable, and so I did not claim him back. He was not MY horse; it is not YOUR grain.

I do not care how you hedge or not, when you sell your grain there should not be one thought of getting back ownership in your mind. Businesses that manufacture or produce a product and sell for a profit, is not concerned with buying it back to sell at even a higher price. They are concerned about producing more products and trying to sell that at a higher price.

I have no problem with a producer who wants to get long the grain market after selling all his grain risking a small amount, but I will not allow that gamble to be masked and associate it in any way to hedging or marketing of any kind. The fact is my producers are "bored" so to speak, and have nothing to be emotional about. They have nothing to do no matter bullish or bearish because it is already reflected in their strategy, making them long and at the same time protecting them with some protection they bought in case it goes down. This strategy is unemotional and has indeed done what it is supposed to do, take the stress out of marketing, be able to reflect a bullish or bearish stance, and allow you to be able to "manage" your potential income.

My producers are constantly getting offers and opinions from people whose end result purpose of such generous ideas and thoughts, is to generate commissions for them. It does not matter that you are assuming more risk using some of their strategies and could lose a lot of money even more than being totally un-hedged, because the end result is commissions which was the reason for the call or email. I make commissions too, and I earn every penny I make. I keep my producers from risking more money than they have to, keep them in reality, even talking them out of commissions more times that I like to admit now. But the reality is when I talk people out of giving me commissions that speaks louder than words. I always explain the reason why. They can still do whatever they want, they are in total control of their own account, but I as they understand this is a learning experience for them. I know what insures failure, and I know what helps a person to succeed, and I do not waiver in my advice. Bottom line is these "brokers", elevators, and such, are promoting trading not hedging! Buying grain back after selling it is really trading, there is no hedge when you assume ownership again, and the purpose of a hedge is to take risk OFF the table.

 

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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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