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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.

May Soybean Daily Numbers & Trade Ideas for 5/3/12

May 04, 2012

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This report was sent to subscribers on 5/2/12 3:30 p.m. Chicago time to be used for trading on 4/25/12.

May Soybeans

After the close recap on 5/3/12: My pivot acted as resistance and was 14.80 1/2, .02 1/4 (.01 1/2 in open outcry), my support was 14.61 which was the exact actual low.


May Soybeans

15.09 2012 High
15.00
--------------14.80 ½ Pivot
14.61
14.40 Uptrend Line Support
14.33 ¾

5 day chart... Up from last week same day
Daily chart .... Up
Weekly chart ... Up
Monthly chart Up 12.97 ½ is the 200 DMA
ATR 26 ½ Balanced 69%

I still say "Top channel line is resistance, uptrend line supports". This July chart looks like the May contract. I always get my numbers from the "spot month" because that contract has the most real players especially in the delivery period. It has always been the most accurate for me.

During the day, I can use the basis between May and July and just add (or subtract) from the May numbers to get the July numbers.

In my daily soybean numbers on Wednesday; my resistance was .00 ¾ from the actual high, my support was .02 ¼ from the actual low.

5/3/12:

Grains: Spot on grain numbers. I will say you had plenty of time to sell the pivots. Soybeans sold off from its pivot, but eventually rallied to the first resistance and failed there. It was easy to sell against the resistance number. My concern with the lofty market prices was sustainability, but corn prices unable to hurdle the resistance levels for quite some time are an easier sell to me.

July soybeans went to the top channel line (resistance) and sold off from there. $14.50 is where the uptrend line is and should support for now. July soybeans did make a new high for the run (May did not) and closed lower which bodes well for another down day to follow on Thursday. November soybeans closed about $.05 above its uptrend line support.

May/July corn spread closed at $.30 ¾ which is almost double the record carry seen in March. Stay away from that spread. Many will read the meaning of that as fewer stocks than the USDA is telling us, but in reality it looks like a simple short squeeze. Longs have the money to take delivery of whatever can be delivered, but the shorts do not have it and cannot deliver, thus having to pay whatever the bulls are asking.

December corn closed $.08 from the low of the year made in April, and the downtrend line comes in just above the high this week continuing to contain any rally. The big question is if we can once again hold these levels, or if buying more protection is the thing to do. I think all of my producers have crop insurance, so each producer has to factor that in their hedges. I have been urging lately to make sure you have protection down to $5. Let's take a look at some things that could be done to reflect your mindset.

Another thing to think about is with your crop protection, you could leave some of the upside here, and just buy something like the $5.10/$4.60 put spread which settled at $.18 5/8. Then selling that call spread above does not stop you from having the upside at $5.10 to the $5.40 put, where your protection ends. $.18 5/8 minus $.07 1/8 from the call spread sold, costs $.12 ½ including commissions. That gives you $.50 protection cheaply. If we rally you could then fill in the missing put protection from $5.10 to $5.40.

Pick your strikes, have the upside you want, protect the downside, and use the strikes and strategy that reflects YOUR decision. Since we had some kind of a break, I would trade the numbers without bias and risk $.04 in corn and $.06 in soybeans using a stop to protect any idea.


5/2/12:

Grains: Almost exact grain numbers. First thing I see is that May soybeans gapped lower on Monday night, with my pivot being right on the high and able to take the sell signal using a buy stop to protect. Early in the morning the market went to my support and a place to take profits at my first support at $14.87 making $.13 (or whatever you would have). Bulls could have bought there. In open outcry the market rallied from near there to the pivot once again and was unable to get through there. Again, it was another chance to sell the gap resistance strongly, with maybe 5 or 10 contracts. Market then went down to my first support once again providing profit taking and another chance for the bulls and a bear like me to buy a contract or 2 knowing the next support was not far underneath. 45 minutes before the close in open outcry the market rallied back to the pivot resistance within a $.01 once again providing another profit taking and place to get short a few contracts. By the close the market went down $.10 providing more income.

Not every day trades like this, I would think at least 3 times a month, but 1 day like this makes my month. It does not matter if the market is one like when corn is at $3 and the average range is $.07, the market rotates like this many days out of the week, or month. Nothing fundamentally changed in that time period or 3:45 hours of open outcry except the price, and the price is what we make money on, never the fundamentals.

So we gapped lower once again tonight (2nd day in a row), we are near $15, and you should already know what I want to do and what I would say. You are correct; I want to sell against the gap using a stop just above it. If I was still bullish I would sell only 1 contract, or none at all, and that is my way of being long having no position at all. I would never cheerlead it through 2 gaps at $15. Can it break through and go to $16? Sure, but I would not bet on it, the odds do not favor for me to think that the market can get above $15.09. I said this at $12, $13, $14, but looking back you will see many sell signals for day trades that worked more times than not. Risking less than willing to make adds to my "casino odds" and warrants continuing the bet every time. Selling at $15 is not like selling at $12, it gets easier for me. The key is to use stops, and allocate funds that are no different than any other day or price. I take my bias and chart location, and allocate funds on my ideas. The pendulum could keep swinging higher for another month or two, but good weather and in time, the pendulum will make just as big swing the other way.

This has been one of the most historic soybean rallies that I have ever seen. I took out bites and chucks of every $1 it rallied, and my service keeps raising their protection to where they have captured at least 65% of every $1 and they did not need to be a bull or bear to have done so. Everyone has such good hedge locations, that only a few contracts have been morphed in the last 7 trading days. This is the closest I get to a vacation.

May corn made a new high for the run and closed lower which bodes well for another down day to follow on Wednesday. Not only was it $.00 ¼ from my first resistance which was the April high, and knowing this could be the high for May too, I would have sold corn with BOTH hands. It was late in the day, but 25 minutes later it went down $.09 ½ which was enough to make more than the $.04 that was risked. I would have covered most of them for a $.06 profit, the rest for more on the close. Little gap lower tonight makes me want to sell the market again, and not only for a day trade but for a longer term trade idea. I would use a $6.67 ¼ buy stop for that. Using a known risk strategy I would be looking for a retest of $6. This equates for producers to roll up old and new crop puts as high as possible if any are left to be done.

I want to take the sell signals only and risk $.04 in corn and $.06 in soybeans using a stop to protect any idea.

5/1/12:

Grains: Spot on grain numbers. $15 soybeans and the market seem to be not at all jittery about it, but I am. Bull chart is not in question, bulls remain in control above $14, and there is no reason to not go higher. But I know well that sustainability above $14 let alone $15 has never been accomplished. I know there is a first time for everything, but the odds are in my favor that they will not. Playing the short side is the only known risk strategy I can do at these levels. The allocated funds are a known risk, and the times that it will lose on the idea, will be much less than the reward. I want to roll up any November put spread, and would consider converting the old crop option strategy to a futures contract and calling it quits if they rally, and consider putting on the option strategy once again near $14. I had some who did roll from a future to an option strategy so they can go after more money by selling calls for more than they paid for the put spreads, and getting a chance for at least $.30 more upside above the put spreads bought and the calls that were sold. I always tell you that you are in control, it is your money, and now you have the strategy that will best be able to reflect your thoughts.

Crop progress reported corn planting at 53% which was more than even what I expected. IL planted 79% and IN 70% is amazing and I thought maybe 50% was possible. IA went from 9% last week to 50% complete this week, an amazing feat. I know my producers out there put in 140+ acres a day between rainfalls. All my producers are that efficient, go back 20 or 30 years ago and this was not thought possible even by 2012. Soybeans progress was 12% planted and that was on time.

Corn is probably looking at the price of soybeans and think there must be some upside left for them, or the trade is trading off of old crop demand rather than the big crop I see coming on near ideal conditions. If that is the case, I am glad they are looking at the "OZ" of the here and now, rather than the "man behind the screen" which will eventually expose a tremendous crop as long as the favorable weather continues. If they were focused on what's coming in the future (which is what producers must do for their new crop), they would have a plan to $5 in the near term, and $4.50 to $4 by harvest. They would much rather see corn go to $6.30 (or higher so they can get more upside and lock in some of the gain by morphing). All my producers have the upside already open for further gain in their old crop corn hedges, and all have that in the December, but more concerned with protecting the downside. This is also a way of participating on the short term strength in the old crop, and holding off from buying more new crop protection. But time is running out with good weather, and I give us until the end of May before $5 or lower will be tested.

It is too early for me to roll out of the June corn calls; I need to wait until more premium is taken out. Only if you are bullish above your short calls should you roll on this rally.

Soybeans are difficult and risky, so I trade less in markets like that, and concentrate on markets with more known chart parameters. Day trading is always on the table for me, and I can have a bias but trade on both sides of the market more than once if the market gets to my numbers.

I would continue to trade without bias and risk $.04 in corn and $.06 in soybeans using a stop to protect any idea.

 

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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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