Grains: Spot on corn numbers and soybean support, soybean resistance was accurate. Trying to pick a top in a weather market is not easy to do, so I do not want to get aggressive unless at extreme resistance levels, or until after the report next Thursday. Last two 3 day weekends produced gap higher opens that have held up well. March corn has the 200 day moving average at $6.67 helping to resist further advances. Corn and soybeans are trading at 60% of their average trading range, and reduced volume, does not bode well for further advances of significance.
Almost all options closed lower on the day, long overdue for the start of time decay. I expect premium to come down today, options are still expensive. You can ... Subscribe Now..., and I would trade the numbers without bias and risk $.05 in corn and $.07 in soybeans and use a stop to protect any idea.
Grains: Spot on soybean resistance and accurate corn resistance numbers, but support numbers were not in play due the sharply higher open. I did not look at the weather before the open, but the floor was called sharply higher due to hot dry conditions in SA. Pinning the tail on the donkey I would also add a weaker dollar, sharply higher crude oil prices, friendly charts, and the appetite of investors for commodities and equities. I look at the fact that if SA loses 10 MMT from what was predicted a few weeks ago, will be nothing compared to a 45+ MMT gain in the US 2012 crop if we get average trend yields.
March corn has rallied $.88 since 12/16/11, and I consider it a rally in a bear market. I look at my experience gained and wisdom learned, to be cautious in selling too aggressively while the market is taking production away (for now) and the possibility for more of the same weather to linger. I also know that before the January Final report (next Thursday) there will be a big chance for profit taking going into this very risky report. Maybe this year the pattern will be the same as in 2011, within 4 days after a bullish report, the market sells off significantly. Who knows what the USDA will do, with less coming from SA they could increase our exports, and guessing what 2011 production will come in at is like throwing darts blindfolded.
Now that corn is at the 200 day moving average, has priced in current weather by the closing bell on Tuesday, market corrected $.88, is extremely overbought, and there is a major report next week. I want to roll up whatever I could in corn to "lock in" what the market has given me. My producers have done extremely well by rolling into March when corn and soybeans were near the bottom. Not only did they get every penny of the down move because there long puts were deep in the money and acted like futures, and the short puts were almost worthless when the roll was done, but they bought "at the money" put spreads and allowed about $.40 more potential income if the market could rally and stay above $6.50 on expiration. Almost everyone moved a significant portion of their puts up already, so if it cost $.08 to do so, they made another $.32 not $.40.
Soybeans added even more income, because most allowed $.80 above their put spread. Most had their crop back above $11.20 or $11.60 after buying back their January shorts sold above $12, and moved up to $12 for March already. Take all costs off the extra $.80 and you need to pinch me to make sure I am not dreaming, that the market rallied this much. At one time today (when on the high) their soybean position was up $.15, and the corn was up $.09 since Friday (futures gain versus what was lost on the hedge position).
About ½ my producers called in, but all elected to take my advice and NOT rolling up to a higher strike in March just yet. Yes I would recommend doing that in 2 weeks or more from now at this price level, because most of the premium will be "sucked out" of the calls by then. I told them all to remember, if this was the last day and we closed at $6.58, the $6.50 call is worth $.08, and your bin is worth $6.58. They sold the call at $.09 (more or less) and that means that nothing was lost on the call, but their bin gained from $5.90, $6, $6.20, or above wherever their put spread starts, to $6.58. The put spreads are or will be paid in full by the time the March options expire. $.38, $.58, or $.68 profits, or take off whatever spent, and we have WINDFALL PROFITS once again, and this is from about 12/19/11 when the roll was made into March!
When you can make that much money no matter bull or bear, and the only risk is not having enough put protection if the market goes down, is truly amazing, but it is what I totally expect from my strategy, what amazes me, is all the opportunities the grain markets offered us the last few years, up and down. My producers who called me today understand the advantage of being the casino owner, rather than playing the game of buying the market, or selling the market, and lose money if they are wrong. How easy do you think it would be to get long this market, and watch it go down below $5.80 corn and $11 beans, and hold it long enough to make what my producers made by NOT risking money and just WATCHING to see if the market can rally and add income they way it did? They did not need to bet on it, the strategy "baked" those thoughts of the "what if" into the strike prices selected less than 3 weeks ago.
On all the hedges that have already been rolled up to the call strikes, wait for the market to come down enough to buy back the short Feb calls when the premium comes out, because when you roll, less of the premium will be lost in the March calls.
December 2012 corn was actually $.01 lower for the day in mid-session, but was dragged higher by the strength in the old crop. If there is a shortfall in SA production, this is bullish the "old crop" because there will be less supply to last until 2012 crop is harvested. But it more depends on when the US gets planted, if in early that really hurts the old crop/new crop spread, but if it gets in late, that is bullish the spread relationship. Less SA supply equates to more US exports, but high prices destroy demand such as feeding livestock or grinding for ethanol. It is a constant flowing market, with supply/demand the ultimate driver of direction, and price where the real buyers and sellers show up, is the ultimate support and demand.
In my 36 years in trading the grain market, I have never seen a fundamental picture that comes down to abstract data and unknowns to work with, and the need for at least what the USDA Jan final report will show, will give us something to "secure our feet to the ground" type of fundamentals. I am sure the losers of the report will tell why they do not believe the numbers, and the rest of us will go back to the "guessing game" of how many acres will be planted in the US, and how much of it will go to corn, and soybeans.
Nothing has changed, $3 or $13 is possible 1 year from today, so I have no problem betting on it no matter if you were a bull or a bear, just make sure the amount you wager is not significant on 1 trade idea, the risk is known, and you have a plan. If I had to wager long term from here, I would play the short side.
Markets are quiet tonight on very low volume, and the funds have already morphed from being short to now long. In the last 2 weeks the funds bought about 74,000 corn contracts, but open interest went down 85,000 contracts, which is short covering action. Back in the day of open outcry only, I learned early on from someone who saved me time, money, and energy, by explaining to me the function of being a floor trader on a day where the open is called sharply higher or lower. He explained that the loser will be paying up on a sharply higher open, or will be selling it under if the market is sharply lower to get out, and the emotional trader looking to get in because the market will keep going up (or down) and disregard price on entry. I learned that the "big boys" who really were the liquidity in the grain market, would not sell at a reasonable price on the open, but at a price that no matter if the market would be limit bid an hour later, they would be able to get out for a profit starting minutes after the opening bell sale price. "Why are you here, to do a stranger a favor? You have no position and the market is going to be sharply higher, you want to make sure it is at a price where you have little to lose if the market takes out the high of the opening range, but has a good chance to hold (since it is a strong resistance you sold at) and get out in the first few minutes for a good profit, more than risked".
The highs were made on the opening bell Tuesday, and within minutes corn broke $.05 ¾ and beans broke more than $.12, by the end of the day soybeans posted almost $.21 loss from the high from the opening bell. I trade price and time, I use my charts for levels of where prices are likely to support and resist, and take trades from my ideas and risk a little using a stop, looking for a nice reward if right. 99% of the time I traded much less than my account size would allow. I do not get excited easily, and it is usually when I make money when totally wrong, I like that. Everything else I expect, winner or loser, no emotions about it. News even significant, make me yawn unless it is good news in the long run for my producers. My mindset has always been to participate in the market and try to take what the market gives me, not to stand there 24 hours a day, every day, and fight it out, no thank you.
The markets did gap higher and that is supportive, and has a chance to post further gains in an emotional market that has less volume now. You think the market is going higher, plan a risk reward, allocate funds and do it. Keep a journal, and do not tell yourself what you should have, cudda, or woulda done, that means YOU are the problem for not being able to listen and execute what you think. Want to bet $10 on that horse, football game, or corn going up or down, no problem, it is only a problem when the amount risked is beyond a reasonable wager.
I told you the reasons why I wanted to sell rallies last week, and for the most part worked out well. At times it was like salmon swimming upstream though. I still feel the same for this week unless really bullish weather, and I still say "The gaps from (last) Friday will be strong support and could be retested, and I continue to say I prefer to sell rallies this week, and I would trade the numbers without bias and risk $.05 in corn and $.07 in soybeans and use a stop to protect any idea".
Grains: Spot on grain numbers. Comments from Friday said everything. Weather is the compass that will either point north or south, and then it is a question of "value" based on current guesses of what production could be. It is ridiculous to think they can be anything but lucky if what they guess actually is produced. So it is really a matter of wanting to bet that the weather will stay dry, or rainfall will get back to normal before too much production is lost. On Monday night going forward, no matter if the direction is up or down, the question will be how far up (or down) the market could go before sellers (or buyers) will show up and end the move. Weather market or not this is always the case, but with weather markets, it could swing past value areas due to emotions, and the fear of the unknown production gains (or losses) makes one think the market will continue trading higher (or lower).
Forecasts will be the fuel, and the more extreme the forecast, the more fuel for the move. Not only does that hold true for continued hot/dry weather, but if a change of weather occurs and forecasts are for plentiful rainfall for an extended period.
All participants are not sure what the other will do to start the year, and this is also futile to predict price as is fundamentals now. I look at the charts for trade ideas, not only day trades but longer term trades. January soybeans are still in bull bode for 2 weeks now, gapping higher last week to end the year on a high note. The steep uptrend line starts the week at $11.84, and then the gap support at $11.63 keeps the bulls in control for now. November high of $12.31 ½ would be an objective and then resistance at $12.50 would be next.
March corn also ended the year on a bullish note, and since the high in November was just above the high of October, $6.76 ¼ will be strong resistance. Gap at $6.52 is the first resistance and if hurdled on Monday night especially if it gaps higher, would bode well for bigger gains.
New crop will follow the old crop and should underperform the old crop gains or losses. My producers gained from $.05 to $.15 in the bin more than they lost on their position, and that was just on Friday. The market did leave in quite a bit of premium, and it will take more than a $.04 move for ... Subscribe
Everyone had some of their bin back from above $5.90 to $6.20, and more at $6.30, so everyone made more income and have locked in $6.40 now. Whatever the cost of the put spreads and roll up, minus the premium collected from the short Jan calls, and then the Feb calls, plus the commission, is the income made since the December roll. If you had $5.90 puts, and now locked in $6.40 puts, that is a $.50 gain, minus the cost (puts bought/calls sold) is what the profits is in just the last 2 weeks. Depending on how bullish or bearish the person was, after just selling 2 months of calls (1 more coming selling the March) the put spreads were already paid for, or just a handful of cents more to collect when they sell the March. It also cost money to roll up to $6.40. Even with that cost and roll up the short Feb call to March now, or when the Feb is a few days to expire, you should more than make up for the rest of the puts rolled to $6.40. This means a $.50 gain by the time March expires, or at least $.40 profit if you sell your cash when the Feb is ready to expire (and the premium is sucked out of it). $.40 gain in 6 weeks, really? Just check my past comments, or ask my producers, and they will tell you that is factual.
Same goes for soybeans, many moved from the original $11.60/10.80 put spreads were rolled to the $12/11.20 (both old and new crop), and for the old crop that means another $.40 minus expenses (in 2 weeks). Many had some at $11.30 and $11.20 put spreads, which makes for $.70 to $.80 gains minus expenses. This is a great income for a year let alone 2 weeks, but they must wait for at least 3 weeks (same as corn) to get most of the premium. When my producers send me money I know they are making much more money than they are sending in. And the best part is it did not matter if they were bullish or bearish 2 weeks ago when they rolled from the Dec, they made more money because it rallied. They could be bearish one day and 3 days later not, and bearish again and 3 days later they might not know what to think, and it does not matter because they are not trading so to speak, they are just managing risk (the downside) and allowing for some upside. They are waiting for the basis to get better, and if they store on farm they are paying themselves to store by collecting another $.04 a month from the carry (May futures are $08 ¼ over the March).
The last three years my producers made unheard of windfall profits, and this year are more encouraged to "gamble" using my strategy because they understand for themselves how they are more like the casino owner than the player they used to be. They understand that when in the bin is when they have the utmost control. The only time they cannot cash sale, is when the market goes down and there is too much time left in the puts and they have not come to full value. When it rallies though they can benefit even more than on expiration, ... Subscribe now.
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