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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.

March Soybean and Corn Numbers & Trade Ideas for 1/30/12

Feb 02, 2012

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This report was sent to subscribers on 1/27/12 9:00 p.m. Chicago time to be used for trading on 1/30/12.

 

March Soybeans

 

After the close recap on 1/30/12: In my daily soybean numbers on Monday; my pivot acted as resistance and was .01 from the actual high, my support was .02 ¼ from the actual low.

March Corn

After the close recap on 1/30/11: In my daily corn numbers on Monday; my pivot acted as resistance and was .03 ½ from the actual high; my support was .02 from the actual low.

All charts and numbers for 1/31/12 have already been sent to subscribers at 2.00 pm on 1/30/12.

 

March Soybeans


12.37 ¾
12.31
--------------12.19 ½ Pivot
12.08
12.02
11.87 FG
5 day chart... Up from last week same day
Daily chart .... Down
Weekly chart ... Down
Monthly chart Up $12.96 is the 200 DMA
ATR 23 ½ Overbought 82%

 

 

For 1/30/12: Downtrend line and then last week's low supports, December high resists.

 

In my daily soybean numbers on Friday; my pivot acted as resistance and was .00 ¼ from the actual high, my support was .01 ¾ from the actual low.

 

 March Corn

6.64 ¼ 2012 High
6.51 ½ pre-Final report settle
6.47 ½ Downtrend Line
-----------6.39 ¼ Pivot
6.31
6.25 ½

5 day chart.... Up from last week same day
Daily chart ...... Down
Weekly chart .......Down
Monthly chart .... Sideways 6.66 ½ is the 200 DMA
ATR 14 ½ Ex. Overbought 92%

 

 

For 1/30/12: Downtrend line was indeed strong resistance and stopped the bulls in their tracks. It was the 3rd time at the line which is the strongest time.

In my daily corn numbers on Friday; my resistance was .05 ¼ from the actual high; my pivot acted as support and was .05 ½ (only .01 ¼ in open outcry) from the actual low.                                                    
 

1/30/12:

Grains: Spot on soybean numbers, accurate corn numbers. Uncertainty of fundamentals is restricting trading to the numbers and average trade range. Perception is the driver now, and the bulls think the USDA has baked in a bearish scenario they do not believe is accurate, I do not know, nor does any bull or bear, so I rather bet on charts and the numbers I derive from them. With record basis (difference between cash and futures) never seen at this time of the year, it is a demand driven rally, not a supply issue. The corn is there, but not in the hands of the users. I do not want to regurgitate the fundamentals, that could be skewed to fit your position, but rather would trade without thought or regard to the fundamentals.

Downtrend line has kept corn prices from advancing, but if and when it is broken, the 2012 high of $6.64 ¼ would be next. It will stop going up when it stops going up, so I look forward being able to have the chance to sell against 4 month highs that were tested in 3 of the 4 months. If it does not hold I will lose $.04, but if it holds I can target a $.25 profit near $6.40 (it would be a retest of the downtrend line which would act as support) and as always it would be a very good day trade.

Soybeans are having trouble at $12.30, let alone the high made on the first trading day this year at $12.44 ¾. It looks like it wants to be the first to turn over and start heading down. With higher lows every day last week, the upside is still in play. Gap left from last Friday at $11.87 will be good support.

All producers who follow my service should be able to be completely relaxed this week because you should have locked in $6.30 puts or higher, and at the same time your bin will make at least $.10 more if the market can sustain $6.50 or higher. If we can rally this week you can roll up your call strike, and roll up your put protection too. That way you can lock in more profit, and give a chance to make more if we continue to rally. Nothing to do at the downtrend line now because it should have already been done, but if we can rally to $6.64 or beyond would be the next place to do so. If we hang out here, or come down $.30, there is still nothing to do until we get closer to the March option expiration. The only thing you can do if we come down, is to buy back the calls you sold and look to resell at a higher strike for more money than you paid to buy back your calls. Taking baby steps and picking up $.10 here and $.20 there, usually risking $.05 or less, is my way of trading. It is much easier to make $1 on both up and down moves, than to make $1 in one direction especially on 1 trade.

I want to continue to trade the numbers with a bearish bias and risk $.04 in corn and $.06 in soybeans using a stop to protect

1/27/12: Grains: Spot on grain numbers! A 6 day $.50+ corn rally to the downtrend line was all that was needed to take profits if long, and sell like I always do when at the downtrend line of any market. The amount of times that the downtrend line holds compared to the times it is broken, truly places the odds in my favor as if I was the casino owner, not the player who feels lucky and wants to bet it will (like betting against the heavy favorite in sports).

Soybeans also failed at the first resistance, but the uptrend line is still intact. I think we will see some profit taking going into the weekend. Just as there was no reason to take out the bracket line support after the Jan Final report, there is no reason to have them rally higher than pre-report settlements.

I want to continue to trade the numbers with a bearish bias and risk $.04 in corn and $.06 in soybeans using a stop to protect.

1/26/12: Grains: Spot on soybean numbers and corn resistance, corn support was helpful at best. Corn looks poised to retest the downtrend line resistance. It looks more of a matter of flushing grain from farmer's hands rather than real demand. Soybean chart has an almost perfect steep uptrend line by connecting the lows since Jan 12 (not drawn). Look at the chart and you will see that all steep up and downtrend lines have held since the highs were made in August. When this uptrend line breaks, I would exit all long positions.

Option premium is being taken out daily, and the market is moving significantly in an orderly fashion. The less you read the better off you will be right now. All the fundamentals will do for you, is justifying staying in a losing trade way past the point you should have exited. Fundamentals are clearly bearish at this point in time, and unless production decreases from here, expect much lower prices once SA is secure on production.

WGN's Tom Skilling (the CBOTs' favorite TV weatherman, when he comes on at noon, they show him on the big screen on the floor) "This winter's the mildest in Chicago to date in 78 years--since the winter of 1933-34. It's run 11.3-degrees milder than last year with half the snow!" Other forecasters note that La Nina's can last up to three years, meaning this one could be roughly 50% complete and threaten US crops this summer, but Australia's weather bureau, thought to be the world's authority on La Nina/El Nino, believes this one will die out into spring, opening up the possibility for a good growing season in the US this summer. Place your wagers here, just another Vegas game called "Weather" that the CBOT takes bets on.

Options offer the exact "odds" no different from an odds board at the racetrack. Settlements are the exact "overnight odds" that give you the odds of probabilities for that option to be "in the money" on expiration. Any outcome can be wagered that will reflect 100% of what you think, including if you think the price on expiration will be the same as it was when you entered the position. I will try on the weekends when I have time, to go into 1 example of this per week, and show you how I look at options, and how you can figure the odds. Only a few of the people I know that started with me on the floor trading options, have the mindset like I do and can perceive "odds" which greatly helps in understanding what strategy to use that will best reflect what you think the market will do. You would be lucky if you can find this in any options book (the odds, to find the best strategy to use). I have gone into many before, but new subscribers in the last few months can use it, and old subscribers might be interested now, and this time they can copy, paste, and save to read again in time. I want to trade the numbers with a bearish bias and risk $.04 in corn and $.06 in soybeans using a stop to protect.

1/25/12: Grains: Spot on soybean numbers and corn support, corn resistance was accurate. Fundamentals started today with calls for a lower open based on rain and whatever else the wires were "pitching", but within minutes March corn went positive on the day. It gained strength as the day went on, and it spilled over to soybeans. My numbers pegged the market, and first support and resistance was not violated. This is a normal trading session, with the market doing its job daily as an auction process, and goes up until the last buyer has bid, and goes down to the place where only the last person is selling. As you can tell in my comments lately, I am keeping my eye on fundamentals, but I see nothing of substance to have a bias longer term other than what I have said before. If we get the crop they are talking and we have an average trend yield, we should see $4 corn by harvest, otherwise a shortfall of expectations could maintain current price levels, but a substantial shortfall will be all is needed to send us to new all time highs. If anyone gives a hint that they offer anything more than a guess to where we will be next month, let alone at harvest, is someone you should not pay any attention to.

As I have said since the last report, if I wanted to buy corn it would be the old crop, and if I wanted to sell it would be new crop corn. Record basis for corn at this time of the year has flushed a couple of my producers to sell some cash. One place in Illinois that was $.35 under when the hedge was made in December 2010 got to sell at $.04 over on Tuesday. $.39 for the entire crop year is a very good income, let alone on the basis alone. We got the basis, we finally got $7+ after starting with an original hedge of $5.50, had some protection the entire time, and now making more income on the way back up!

Bearish one day bullish the next and bearish again did not matter; it was the strategy and your ability to execute it that mattered. The thing that is out of sight out of mind is the fact that we do not need to buy more put protection for the old crop or new, but I am always aware that by not spending or losing money, is like making money. I do not take anything for granted, and by remembering the times I saved money, makes it easier to spend when I do need it. Remember, my mindset is always in it for the long haul, it is like a casino owner that wants the odds in the long run in his favor, and makes sure he keeps it that way. If you let protection get too far away from you, it is no different than the casino giving the odds instead of getting them. As in life, if you do the right thing long enough, you should be better off than if you did not. And even if you "beat the odds" in the short term, the price you pay for the stress you get, is not worth it.

I really consider my producers a success story now, and they can laugh off the fact that they are not "Mr. Perfect" and smile what they have accomplished and earned instead. They are empowered, and by learning how to be in control of how they do things, leads to much lower stress than when they used to rely on others. All will read this and think I am talking about them, and yes you are right, I am talking to all of you. Yes, some have learned well and still will keep on learning even more, and some are on the path and know the basics as they watch the results, but all have executed well and should take all the credit for execution, and whatever bullish or bearish bias (by the strikes they use) allowed optimal results. Sometimes great, sometimes not, but always making something if we can rally.

Since the basis is so strong at this time, the function of the market right now is to pry corn out of the hands of whoever has it. When the market gets their fill, right back down we go and look for new buyers. Now that almost everyone has rolled into March call options, all we need to do is wait and see if the market will put more money in our pocket by rallying, or to watch the calls waste away before we roll to May. Only each producer can say when the best time for them to sell cash, but remember, it is without question to do it on a rally, or when put option spreads are almost intrinsic equal to the futures, or anytime when above the put strike you are long is really best. I want to trade the numbers with a bearish bias and risk $.04 in corn and $.06 in soybeans using a stop to protect. Smaller ATR lets me risk less to get my reward.

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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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