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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 Dailynumbers & Trade Ideas for 1/19/11

Jan 19, 2011

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This report was sent to subscribers on 1/18/11 2:45 p.m. Chicago time to be used for trading on 1/19/11. Everything is done by Howard Tyllas, no program or black box.

March Soybeans

After the close recap on 1/19/11: My resistance was 14.32 1/2, .00 3/4 from the actual high, and my support was 14.07, .04 3/4 from the actual low.

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14.32 ½   

--------------14.19 ¾         Pivot

14.07                              

  

  Use the same numbers as used on 1/14 & 18/11

Trend

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

Daily chart   ....  Up

Weekly chart ... Up

Monthly chart    Up          $10.97 is the 200 DMA

ATR 28                              Overbought 75%

soybeans 1 19 11

I still say "Uptrend line is support at $13.45. Report day contract high is resistance, and my daily numbers resist".

March Soybeans for 1/19/11

I still say "Bulls remain in control as long as the uptrend line holds which is near $13.45 today".  

In my daily soybean numbers on Tuesday; my resistance was .02 ½ from the actual high; my support was .01 ¼ from the actual low.

1/19/11:       

Grains: Spot on grain numbers. My idea to trade without bias always works well when both support and resistance is spot on. My preference to sell resistance was a good trade idea in soybeans that worked well. Corn would have produced a small winner.

Looks like corn is working its way higher not only on the charts, but in search of a price that will slow down usage as the fundamentals clearly show is needed. Cattle prices were on fire Tuesday, and crude oil is not going down with a strong stock market to help support it. Too much demand and too little supply to stay on this road, and higher prices is the only cure to cool demand. $7 for old crop corn is possible but I am still looking for my objective of $6.80. Taking some profits if long in some way such as reducing contract size, have a put strategy, or sell a call above at your target and get paid for holding your position is the prudent thing to do. Being long $1 lower without protection was one thing, at these price levels it is another.

I am bullish but I am also aware that the funds are now holding a record position in corn. At some price higher, this will be an issue that could take away profits in a heartbeat. The higher we go the less I want to be long, and the lower we go the more I want to buy. Have a risk reward plan, but I have no reason to want to be a seller except for a day trade. I want to continue to risk $.04 in corn and $.07 in soybeans and trade the numbers without bias, but want to sell resistance levels more than I want to buy supports today.  

1/18/11:

Grains look good on good volume tonight with corn being the leader. Soybeans traded almost exactly down to my first support (off .01 ¼) before finding support and going higher to my pivot which acts as resistance, and was off only $.00 ¼ as I write. It looks like corn will grind higher to start the week, but I do not think we will end above here on Friday. If December corn can get to $5.80 today, putting another hedge or 2 on would not hurt when talking about locking in $.60 of record profits. I would look at..... SUBSCRIBE NOW!! I am now back at home in Chicago from Thailand.

1/17/11:       

Grains: since 11/11/10 I have said I was looking for $6.80 corn, and have stuck with that and not changed my opinion except now $7 is more than possible, but rather when. We have 10 weeks until planting intentions, and the focus for the near term is production in SA, the dollar, and crude oil. Rationing has yet to occur with high ethanol prices and record cattle prices, amid tight supplies.

Charts are bullish, beans and corn playing leapfrog higher, funds adding to their position to the extent that are approaching record levels of ownership, and a fundamental story that keeps my thoughts of $6.60 to $6.80 old crop corn alive, and maybe a run at..... SUBSCRIBE NOW!! The all time high on the continuous front month corn charts is $7.61, and pressing that now would not be close to reality. I want to take profits the closer we get to my objectives, and not risk more if we go down first, than what is left to the objective. I do not want to risk more than $.20 to get the last $.30.

I will say that March corn traded as high as $6.52 in the "modified session" which traded about 10 minutes after the market closed at 1:15 Chicago time. Futures Flight does have access to this session for clients with accounts on the book. I am looking for higher prices down the road, but today I would trade the numbers without bias (but prefer to sell resistances) and risk $.04 in corn and $.07 in soybeans on any trade idea using a stop to protect.

Looking at the February corn options that expire this Friday, There is an open interest of 11,792 contracts at the call strike of $6.50, and then nothing to speak of down to $6.20 which has 11,240.  There are only 830 $6.50 puts and really nothing down to $6.20 where there are 5,484. I do not think the market will be above $6.50 this Friday, and if we do there is a risk of being sharply lower on Monday after options turn into futures. I think we are likely to be around $6.20, and soybeans at $14 are my guess for this Friday.

Producers who are..... SUBSCRIBE NOW!!. The options protected you and allowed you to go after and get a higher price than before.

The 2011 December corn hedge strategy of SUBSCRIBE NOW!! I would ... subscibe now!! I am all for protecting some downside, and have the ability to make more if higher.

The 2011 November soybean.....  subscribe now!! This option strategy will not lose what the bin gains as we move higher, and can morph at any time. This can only lose $.21 (from settlement) if the market is between $13 and $15 on expiration, but protects $.80 down and allows $2 upside unscathed.

There is no other way I know that compares to using an option strategy, because with options you can truly reflect exactly what you think the market will do and have the time needed for your idea to work or not. An example would be, let's say you think the market is going nowhere and will be within $.10 of where it is today in a month from now. How can you make money trading a futures contract with that trade idea? You cannot, because if you are right the market will be unchanged and no matter long or short you will be even. Who buys or sells something anyway if they do not think the market will move in that direction? But with options, you could sell a put spread below the market, and sell a call spread above the market. No matter what, one spread must expire worthless, because the market cannot be higher and the call spread in the money without the put spread being worthless, and if the put spread is in the money, the call spread would be worthless. On Friday the market is at $6.49, I could sell a March $7/$7.50 call spread and sell a $6/$5.50 put spread and collect $.14 ½. The most either spread could be worth is $.50, and I got $.14 ½. If the market does not go up or down more than $.50 in the next 5 weeks they will both expire worthless. Of course I can cover (exit) any part of this spread whenever I want to. My trade idea is the market can be up or down from here, but I do not know which way, but my bet is that it will not move more than $.50 on expiration.

Options can and will reflect your mind better than anything that I know of out there. It also has built in parameters of margin, risk and possible rewards. You must have a conviction, or you are no different than a bettor at the window who has no idea of who they want to bet, so I will tell you, WALK AWAY from the window until you do. Walk away for a speculator is to stand aside until a trade idea takes place, and for a producer it means to hedge and take some off the table and allow the parameters reflecting your thoughts. Decide what downside you want, and what upside you want, and the search for the best strikes become easy.

Speculators and producers should also keep track of the bullish strategies in my past commentaries and how well they have worked out. You need to have reason when selecting your strategy and known risk strategies will keep you out of trouble if the unimaginable happens.

1/14/11:       

Grains: Spot on grain numbers. Corn looked good today; soybeans looked like they ran out of steam. Looking at the chart back in November following that bullish report, I would think we were not far from posting a similar correction soon. I am bullish and think higher prices are to come, but at the same time I ask myself, would I feel as good making another $.50 from here, as I would not feel as good if they go down $.50 instead? For me keeping the $.50 just made is more important than making another $.50. I do want to make another $.50, but at this stage of the bull market, giving up something such as ......SUBSCRIBE!! .....When this happens the results are the same, you make more money. When wrong in my strategy, instead of losing more than you thought (does not happen with my strategy) you actually make money. When right I make money, and when I am really wrong, I make money too.

Speculators and especially my producers I want to be responsible by saying, I would continue to hedge on the way up, and your bullishness can be reflected in the strategy you choose, but remember, gambling must have a risk management at all times, and all bets are not created equal. Make sure your wager is appropriate for your account size and income. A mile is not a mile in futures trading. Think of it as a marathon race. When you run the sixth to seventh mile you have and exert a certain amount of energy, but when in the 16th and 17th mile, it takes much more energy to run the same "mile". As the futures market climbs higher attempting to find the highest price that will be paid before demand destroys itself due to the high price, and the ability to actually buy and make money using it, the energy it takes to move higher increases.

Buying $.60 to the downside in corn, and $1 in soybeans seems to be enough protection, ....SUBSCRIBE NOW!! You can do the same thing as a speculator if you so desire and are long the futures contract.

Numbers are in, the dollar and crude oil will have an influence on prices over the next 2 months, but I do not care day to day about what they are doing. Export program is quiet now and no help to the bulls, I will keep my eye on this for a longer term impact on carryout. Battle for acreage should keep prices supported the next 2 months, and production in SA will also be a significant factor in the near term. I do not care what brings these markets to my objectives, I want to take advantage of it, and that means to take profits as these markets enter the target area. I want to trade the numbers without bias, but the higher we go from here, the more I want to play it from the short side with less contract size used on this contra trend trade. I want to risk $.05 in corn and $.08 in soybeans using a stop to protect, which is more than enough room for now.

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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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