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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.

July Soybeans & July corn and December corn Daily Numbers & Trade Ideas for 6/6/11

Jun 07, 2011

This report was sent to subscribers on 6/3/11 3:30 p.m. Chicago time to be used for trading on 6/6/11.

Results for 6/6/11:

In my daily soybean numbers on Monday; my pivot acted as resistance and was .03 ¾ from the actual high; my support was .04 ½ from the actual low.


In my daily corn numbers on Monday; my pivot acted as resistance and was .04 ½ from the actual high; my support was .04 ¾ from the actual low.


In my daily December corn numbers on Monday; my pivot acted as resistance and was .00 ½ from the actual high; my support was the Exact actual low.


In my daily crude oil numbers on Monday; my pivot acted as resistance and was .04 from the actual high, my support was .43 from the actual low.


In my daily Nat Gas numbers on Monday; my resistance was .004 from the actual high; my pivot acted as support and was .036 from the actual low.


In my daily T bond numbers on Monday; my pivot acted as resistance and was 4 from the actual high; my support was 1 from the actual low.


In my daily gold numbers on Monday; my resistance was $3.00 from the actual high; my pivot acted as support and was $0.60 from the actual low


In my daily S&P numbers on Monday; my pivot acted as resistance and was the 2.50 actual high; my support was 4.25 from the actual low.

July Soybeans

After the close recap on 6/6/11: My pivot acted as resistance and was 14.14 ½, .03 ¾ from the actual high, and my support was 13.86 ¾, .04 ½ from the actual low.

July Corn

After the close recap on 6/6/11: My pivot acted as resistance and was 7.53 ½, .04 ½ from the actual high, and my support was 7.26 ¾, .04 ¾ from the actual low.

December Corn

After the close recap on 6/6/11: My pivot acted as resistance and was 6.86, only .00 ½ from the actual high, and my support was 6.65, the EXACT actual low.

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July Soybeans                                                         

14.42 ¼
14.27
--------------14.14 ½ Pivot
14.02 ¼
13.86 ¾

Trend
5 day chart... Up from last week same day
Daily chart .... Sideways
Weekly chart ... Up
Monthly chart Up $12.99 is the 200 DMA
ATR 24 ½ Overbought 86%

 

July soybeans 6 6 11

 

Downtrend line is support now at $14.00, and then uptrend line at $13.80. High in March resists at $14.42 ¼.

In my daily soybean numbers on Friday; my resistance was .01 ¾ from the actual high; my pivot acted as support and was .02 ¼ from the actual low.

July Corn

7.77 ¼ May High
7.66
------------- 7.53 ½ Pivot
7.41
7.26 ¾

Trend
5 day chart........ Down from last week same day
Daily chart ...... Up
Weekly chart .......Up
Monthly chart .... Up 6.35 ½ is the 200 DMA
ATR 21 ½ Balanced 56%

 

July corn 6 6 11

 

For 6/6/11: Downtrend line is resistance at downtrend $.05 from the high in May. The gap at $7.20 ¼ is support and then the uptrend line near the gap at $6.82 provides strong support.

In my daily corn numbers on Friday; my pivot acted as resistance and was .03 (but was the EXACT high in open outcry) from the actual high; my support was .03 ½ from the actual low.

December Corn     

6.96 ¾ 2011 High
----------6.86 Pivot
6.75 ½
6.65

ATR 18 Balanced 74%

 

december corn 6 6 11

 

This is the December corn bar chart on 6/3/11. Market made a new contract high and closed lower which bodes well for another down day to follow on Monday.

I adjusted the steep uptrend line that provides support at $6.75 ½, and then major support is the uptrend line that comes in at $6.42 to start the week.


Grains 6/6/11

Grains: Spot on grain numbers! When I sent my grain numbers for 6/6/11 (on 6/3/11 at 3:30 pm) I said "I would be recommending rolling up and/or extending put protection if we are lower on Monday. Where we go from here is all based on weather for Monday's trade, and the chart cannot help with that or how the market will react if it is as was expected on the close on Friday. On the other hand, soybeans chipped away at resistance and managed to close higher and near their highs for the week made on Friday. That is friendly but they nonetheless are at resistance levels. I would prefer to buy soybeans and sell corn based on the charts, but I would not risk more than $.12 to make $.50. I have commented on this spread in the past, and buying soybeans and selling corn has not been on the right side of the market, but has strong potential at these ratio levels between the two".

July corn could not get past the downtrend line let alone last week's high of $7.75 and so profit taking was in order going into the weekend. I said in my comments for Friday (last paragraph) that "there was a good chance for profit taking today" and normal for this chart "look". There was no chart damage on Friday, and we will need to see how much we can correct downward before we find support. We have had a $.95 correction beginning on 11/9/10, then about $1.30 on 3/4/11, and then another $1.30 break on 4/11/11. A $.95 break from the high in May would bring us down to the uptrend line and a great place to get long no matter what the reason is that provides the opportunity. $7.20 ¼ gap is first good support, and the gap near the uptrend line at $6.80 ½ is major support, and would be a gift to buy if seen this week.

Cash markets are trading higher and that is good for my producers because that means the "basis" between cash and futures is improving. That also means there is concern about getting the actual product in the hands that will be using or exporting it. Yes, corn charts are looking like the correction has begun, but action on Sunday night will give us an answer to any affect of the weekend weather, and the next 5 days forecast.

Corn planting is usually 100% complete by this weekend, but States like Ohio which was only 19% planted last week probably made good progress, but we will see how much is too wet to plant on Mondays crop progress report. In May 2011 the USDA just lowered its corn yield down to 158.7 BPA. In 1995 to compare we were only 72% planted as of last week's crop progress report (we are at 86% in 2011 last week). The USDA lowered its June estimate by 5.9 BPA. In 2002 they lowered the yield 2.1 BPA in June when we had only 87% planted. In 2008 we were 92% planted and they lowered the June estimate down 5 BPA. In 2009 we were 90% planted and they lowered it 2BPA in the June report from the May report. It would not surprise me to see the USDA lower its estimate once again in the June 2011 report. Keep in mind that in 2009 we saw record yields of 164.7 BPA, and in 2010 we posted only 152.8. Anything can happen between the June report and the final report in January. This Thursday we will see what the USDA predicts yields to be.

Last 2 weeks the funds upped their total position 39,100 contracts to 328,000 still huge but well below levels they have held of over 400,000. I can see how they must think the downside is limited and the upside potential is great, because that is what I think fundamentally and chart wise. We will not know the latest guess of how many acres were planted until the June 30th report. The yields guess this Thursday and the 30th report will give me more of a clue to the possibilities of how high December corn can get. This does not tell me what we will actually produce or what the price will be in December, but rather how high (or low) we can get on the current guesses in the near term. This is because there is nothing but uncertainty to count on, the numbers all go out the window if the weather cooperates or does not.

It is almost an impossible task to accurately predict how much corn will be lost in the Eastern belt and how many more soybeans will be planted, and how much corn will be produced in the Western belt to offset what was lost in the East. PRC production 2011 forecasts are now 180+ MMT, up from 172.5 last year. I think they will not be in our market for corn as long as we do not have trouble with our crop, if we do then they probably will be in there buying with the rest of the end users. Ethanol demand has been strong the last 3 weeks but cattle and hog prices have had a setback which could curb usage.

That is the way I look at the fundamentals, and now back to the reality of the charts. You see how I approach chart levels, lines, and gaps no matter the market, fundamentals known or not known. The charts tell you the factual past, it is the person looking at the chart that is responsible for predicting the future. I am making it clear no matter the market, how I look at that chart and why I think a market can get to the support (or resistance) for an objective to exit, and/or the place to enter a position going the other way if waiting to do so at that location. It is important for you to have an approach that has a reason to enter and exit, and has a risk and reward that is reasonable for that idea. Dollar amounts should be used to determine how many contracts to trade, but not to prove an idea wrong. I use the charts to prove me wrong, and that lets me know how much I risk per contract.

Why guess the fundamentals when I do not need to guess the charts or my numbers? Anything that you read or hear is already priced into the market. It is only before news comes out could the news be helpful if you acted beforehand. Charts say give me a reason to hurdle the line, otherwise the number is resistance (or support), and I am the casino betting it will continue to hold until it does not. See for yourself how many times support or resistance holds versus the times it does not and is broken.

November soybean chart is strong and only the 2011 high holds it back from liftoff. Strong support starts this week at $13.40. July soybeans are encouraging but face stiff resistance at the March 31st high, and then the 2011 high.

I prefer selling December corn because of the reversal signal on Friday. 2011 high made on Friday is resistance, and the first support is the uptrend line at $6.75 ½.

I want to trade the soybean numbers without bias today, and sell corn at resistances; I only want to take the corn buy signals at supports. I want to risk $.06 in corn and $.08 in soybeans on any trade idea using the numbers to protect.

Speculators using futures and farmers who use the bin or ground: ... 447 words, Subscribe now!

Subscribe now, 78 words and then: Take off all costs from the first day hedged from the final price (let's say $.50) and you have $6.50 corn. You had some protection for a year (at expiration) and insurance always has a cost. But that protection also buys you confidence to look for higher prices knowing that some of your backside (downside) is covered. You continue to have upside potential to make more money if the market does rally, and you will make more money even if you were really bearish and wrong. At any time you can lift your hedge and sell a cash source, and you will have done extremely well on this rally in 2011, but you will say goodbye to more upside and end the risk to the downside. At some point in time if we can rally another $1, you might just want to take off 10% this way.

To recap where my producers (and the many farmers who have my service and hedge elsewhere) started to hedge we must go back to 2010. In the summer before the June report many services were selling
December 2011 corn. I was vehement in recommending NOT hedging new crop and concentrating 100% on the old crop. What I did strongly insist was to lock in all input costs for 2011. I had forecasted for months that if for whatever the reason we could get through $4.54 in the spot month 2010 corn, we would go to $5.42 with little resistance along the way. The June report provided the bullish news needed to do just that. Some producers hedged a few December 2011 corn when at $5.20, but my first recommendation to start to hedge was in the
last week of 2010 when at $5.50. Nobody has done anything for weeks on the put side, yet the lowest put strike they are long (meaning they have the right to be short a futures contract if below that strike on expiration) is $6.40, and 90% of all puts that all my producers have locked in is $6.70 puts. This $6.70/$6.20 put spreads were just enough protection when we were testing the supports and never needed more since we held my stop close only. I probably talked and presented a case through my service that allowed my producers to not buy more because it would only cost a few cents more if supports were broken and justified buying more. This is about the fifth time in the last year I gave reason to not buy puts and was the right thing every time, and when I can make money in commissions by saying "yes" and say "no" instead (unless support is truly broken) they know I am always honest even if I am wrong (wrong is that the chart support number is broken). The upside potential is varied and that side is a reflection of each producer's thoughts, not mine, but everyone is in a position to make more money if the market rallies and the majority are around only $.60 of the upside that was sold away but could be rolled up $.50 to a higher price for $05 or less. Compare that to all the other services.


 

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Howard Tyllas

Tel.1-312-573-2699, 1-312-823-9189

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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