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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 SOYBEANS DAILY NUMBERS & TRADE IDEAS FOR 2/10/11

Feb 11, 2011

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This report was sent to subscribers on 2/9/11 4:20 p.m. Chicago time to be used for trading on 2/10/11. Everything is done by Howard Tyllas, no program or black box

 March Soybeans

After the close recap on 2/10/11: My pivot acted as resistance and was 14.55 3/4, .00 3/4 from the actual high, and my support was 14.34 1/4, .04 1/4 from the actual low

All Results for 2/10/11:

My soybean resistance was 00 ¾ from the actual high, my support was .04 ¼ from the actual low.

My corn resistance was .03 ½ from the actual high; my support was .07 ½ from the actual low.

My nat gas resistance was .003 from the actual high; my support was .015 from the actual low.

My crude oil resistance was .21 from the actual high; my support was .08 from the actual low.

My 30 yr. bond resistance was 17 from the actual high; my support was 16 from the actual low.

My gold resistance was $2.40 from the actual high; my support was $3.20 from the actual low.

My S&P resistance was 1.00 from the actual high; my support was 2.50 from the actual low.

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14.88

14.70 FG XX                    near Top Channel Line

--------------14.55 ¾          Pivot & 2011 Contract High

14.41 ½                        

14.34 ¼ FG                       

         

Trend    

5 day chart...       Up from last week same day                                                

Daily chart   ....  Up

Weekly chart ... Up

Monthly chart    Up           $11.32 ½ is the 200 DMA

ATR 24 ½                        Extremely Overbought 92%

 

soybeans 2 10 11

I adjusted the top channel line (red) which acts as resistance. Uptrend line supports, weekly chart resists.

 March Soybeans for 2/10/11

I still say "Bulls remain in control as long as the uptrend line holds which is near $14.05 today".        

In my daily soybean numbers on Wednesday; my resistance was .03 ¼ from the actual high; my pivot acted as support and was .05 from the actual low.    

2/10/11:

Grains: Spot on grain numbers! CORN: After the USDA took away 70 million bushels from the corn stocks (-61 million from the average trade guess), corn opened sharply higher and found sellers at my second resistance number of $6.95, and within 20 minutes witnessed a $.08 ¼ pullback. 30 minutes later we made new highs and the rest of the day my resistance number of $6.95 became perfect support.

They did add 50 million bushels to the ethanol grind usage to 4.95 billion bushels, and I am still looking for another 50. They also added 20 million bushels for feed/residual use. Carryout now estimated at 675 million bushels could go lower. On Monday the USDA will release its 10 year baseline projections through 2020/21. They do this to help with budgeting. On February 24 & 25 the USDA meets in their annual Agricultural Outlook Forum for 2011/12 projections which could differ from their baseline projections. The bottom line is the carryout numbers.

SA and world numbers I do not want to give time to right now, nothing there but I could spin it a little bearish. What I want to say is that going to $7 I forecasted on 1/17/11 as more than possible, and on 1/27/11 I said that higher prices could be seen by the spring or summer. But here it is early February with $7 corn already. Taking away 70 million bushels means that the price in the recent past has not helped curtail demand yet. Ethanol grind has come down 2 weeks in a row but still at a 5 billion bushel pace. So how much higher can we go on the current fundamentals? I as well as anyone else do not know that answer by looking at fundamental numbers. That is why I really do not care about the fundamentals for price discovery, and use my charts precisely for that reason. I view the market now exactly as I did this weekend (2/7/11) when I said:  

"My target of $6.80 has officially been claimed. Now it is pivotal, and a few closes above there would allow the next objective to be....  SUBSCRIBE NOW! .....is a decent risk reward, but at this location being ahead of historic highs at this time, is not as favorable or is it an easy task. Selling in day trade mode has not been hard and has had many opportunities, but holding a sell for any length of time has been like salmon swimming upstream or worse. Except for the $.95 break in November and 2 $.40 breaks since then, have the bears had the chance to profit on a swing trade".   

I have only 2008 to compare price to, as well as other years of supply to usage ratios, and we are ahead of those years in price comparisons. My wisdom and experience tells me that December corn should be well supported on corrective breaks until acreage is secure and favorable weather is in the forecast. The price parameters I outlined in the above paragraph I believe is where we will trade until the March planting intentions report.

Option strategies we are using could not be better, and if I have time I will go into more of my thoughts and observations, and ways for you to roll your old crop hedge. Old crop option strategy begged for the market to go higher and add profits to the hedge, and with the roll to April trying to get more money to the upside as well as protect the price of $7. New crop hedges lost on average less than $.01 ½ on Wednesday, and has allowed almost every hedge to get another $.50 in profits from their original hedge if today was the last trading day of the December options. NOW as always, is the time to reflect your thoughts that you are writing down in your journal as to what you think about the market, and the position you want to have going forward from here! Do not be the old lady at the racetrack who says after the race is over, that they knew the horse was going to win, but did not bet on it when they had more than enough time to place the bet. Subscribe now!.... Producers on my book work 1 on 1 with me on their March to April and May roll, and I reflect the proper strategy after listening to their thoughts and ideas.

SOYBEANS: Soybean and wheat numbers were left unchanged for carryout which were slightly higher than the average trade guesses. Soybeans rode the bullish corn numbers to their own benefit if for no other reason than the battle for acreage. Like corn, in open outcry soybeans opened sharply higher and found sellers at my second resistance number at $14.52 ½ (high at the time was $14.54) and within 10 minutes traded down to $14.36 ¼ barely higher on the day. The buy stop was never threatened and the reward could have been taken making twice what was risked in doing so.

China has stockpiled 16.6 million metric tonnes (MMT) down 2 MMT from last year, compared to 9 MMT 2 years ago. The US has only 3.8 MMT which is tight for us. World ending 2010/11 stocks are projected at 58 MMT which is down 2 MMT from last year, but well above 2008/09 stocks of only 44 MMT.  

Like corn, I think soybeans will be well supported on breaks until at least Planting Intentions report on March 31st, and maybe into the planting season until the crop gets off to a good start, and then the downfall will begin, no matter what price we start from. This is the hard part; at what time in the growing season with decent weather will the deep correction begin? I will rely on my charts for a level, and a clue to when from the charts. I really do not care if I get it wrong a few times risking $.07 each time, when in one day when the resistance holds I will be able to more than make up for the losses when the resistance did not hold and I was stopped out.  

Tonight we are in a narrow trading range on decent volume, and I expect orderly trade with some corrective action in the near term. The news is out, we have digested the numbers, and now it's back to the price action and charts for me to get trade ideas. I want to use the numbers to take the sell signals only today and risk $.04 in corn and $.07 in soybeans using a buy stop to protect.

2/9/11:

Grains: Spot on corn numbers, and spot on soybean support and accurate resistance number. New contract corn high on Monday but closed lower boded well for another down day to follow on Tuesday, indeed it did although by only $.01. Both markets were under pressure but when open outcry let the wheat bull dogs out, the tone changed for soybeans and corn.

At this point in time the charts are bullish but at resistance levels, the bears are leery of selling the market, and not much is expected to change the bullish fundamentals now or in the near future. I see no sign of rationing that will stop the tightening of stocks. The need for crops to compete for acreage will continue and the only way to do that is in their price in relation to the alternative crop choices. There are 2 things that cause a rally, demand and tightness of stocks. Good demand and big stocks produce short term rallies, but good demand amid tight supplies will produce long term rallies capable of explosive rallies and huge setbacks.

I will send you my comments about an hour after the report comes out at 7:30am Chicago time, and the link to the report after I post it. Unless a surprise, I am more interested in how the market reacts than the report itself. For my producer's sake and "who does not like a bull market", I want and we could see the markets go higher. Like any day I would use the numbers to day trade, and risk $.05 in corn and $.08 in soybeans today on any trade idea using a stop to protect. If there is a surprise I will update my trade idea when I send my report comments.    

Since March options expire a week from Friday, you should read my commentary from 1/17/11 on page 20 today. You now have the same opportunities and strategies that allow you to reflect your mindset on the roll. My producers will be rolling to selling April calls. I have suggested selling April $7.20 calls. You can buy back your March calls and take profit, and then sell the April, or you can do it as a "calendar spread".    

2/8/11:

Grains: Spot on soybean support and accurate resistance, corn resistance was spot on and the support was accurate. Having another down day in soybeans was no surprise with my comment over the weekend saying that this chart is a sell, as well as the top channel line providing an excellent selling opportunity when the market was higher. I also said corn was a sell if below $6.80. Corn sat just below the pivot in open outcry since the open and even traded the pivot an hour after the open providing a sell signal. Corn support number was not reached, but up to $.10 profit was seen before the close while only risking $.04 on the trade idea.

Today is the day before the report and is the day you should adjust your position to make yourself comfortable. I do not expect any surprise though. I am encouraged that they are hanging around my resistance, but unless above $6.80 I do not want to play the long side here. I am friendlier new crop corn and soybeans than old, and at this time I feel the market can go higher but not with the ease it had on the last $1 in gains. Correct first and stay at a lower level until planting intentions is my thought at this time, but as I have said before, if we can get above $6.80 my thoughts turn bullish in price once again.

Subscribe now! ......but the bottom line on which strategy to use is based upon your thoughts on where the market is going to and when. When you have a conviction, knowing what option strategy to use becomes easier with basic option knowledge. Through observation and experience you will be able to compare the difference. 

Instead of buying the December ....             

New Subscribers:  Keep in mind that these are day trading numbers. They are equally to be used for swing trading and longer term trading time frames on the day I want to enter or exit my position. The charts are to be used for overall trade location looking for areas of price discovery of support and resistance levels. When the market does go to the charts longer term support or resistance levels such as bracket lines or longer term trend lines, I use my numbers on that day to enter or exit my position. The numbers do not tell you what to do, you are in control of that, but they will give you a framework to try and buy or sell at the best price for that day. For me it gives me a strategy and the best way I have found to discover the best price for entering or exiting my trade ideas.

If I have the exact numbers for the actual high and low of the day 12 hours in advance, the question has always been, how do I trade it? That is what I best describe in my numbers explanation. Any intuitiveness or nuances I trade, I would keep a journal to see if it is worthwhile overriding my plan. I rarely go against my explanation

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           May Your Next Trade Be The Best                          

                     Howard Tyllas            

   BT

Disclaimer:     No guarantee of any kind is implied or possible where projections of future conditions are attempted. 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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