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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.

Hedging?

Jul 18, 2013

  

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Are you tired of listening to the same BULL ****, and services that do not have a plan if the market goes down instead? Hedge means to take risk off the table, and my service has all producers 100% hedged and they do have most of the upside unhedged (if we can rally for whatever reason). Hedge with a Pro and option expert who has been trading grains for 36 years.

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HEDGING

 6/28/13: Grains: As the years go by it makes it easier to see the things I consistently say, and with repetition it goes from one ear out the other, to witnessing it happen time and again and now cannot be ignored, to actually excepting the wisdom and using it. It cannot be ignored when I say "I do not care what brings the market to a chart level, I want to exploit it". The market was playing the drought game and thought highly improbable that conditions would improve, and some actually saying it would get worse. What have they done since we got all the rain and then some, and conditions were improving every week, they did nothing but instead are playing the too wet game. A bull is a bull. Now conditions from Canada to the Gulf of Mexico up and down from the western Iowa border eastward is completely out of drought conditions and are now considered "normal".  

For a trader or a farmer, this is a classic example of trading and predicting weather, they are two different things. Are you trying to predict weather, or take advantage of the market no matter what the fundamentals that made it go up or down including everything else? You have learned how to factor the "what if" at all times into your option strategy, so taking a stance that has no control of risk like many are as they seek some arbitrary number to take profit (and then most never do because they raise the goalpost higher), is bankruptcy waiting in time to take you out of the game. 

There are major problems with hedge services, and one is that they seem afraid to sell because they are more worried about the market going higher and someone will sell for more than they recommended, but they should be much more worried about the market going down and losing money that way. It does not matter if the next farm got more money or less money, what should only matter is what YOU get. If you got $6, it is $6 no matter if your neighbor got $7 or $5, you still got $6. If your happiness depends upon what your neighbor got, well then you were born a farmer I guess. My producers have learned, happiness comes from what you do, not others. If you got $6 and your neighbors got $7 makes you unhappy, and next year you get $5.50 and your neighbors got $5 and you are happy, you need to listen to me or go see a psychiatrist. $6 and you are unhappy, and $5.50 the next year and you are happy, you need to take hold of common sense and logic and sit down with yourself and think about it. Mindset is a big part of trading or hedging successfully, because when you cannot do what you want to do, knowledge becomes meaningless. When you have enough experiences, and now that you know what to do and not do, it will lead to wisdom or you babbling to yourself about why you cannot do what you are supposed/want to do.    

Hedge, the meaning of the word is so simple, it means to reduce risk, and my strategy that we are using is also very simple, and everything that is reflected in the strikes used, can be changed or "MORPHED" as time goes on. You are in complete control, and you are only hedging what put spread is bought and the call spread strikes sold, everything else in price is unhedged. If you have a crop failure and need to back out of the "rights" you have used to hedge, it is very easy to do so. Unlike committed cash sales, there are no consequences for "lifting" your hedge. 
 
The problem with the word "hedge" being used by many sources is that they seem to not know the simple meaning of the word. It means to "take risk off the table", certainly not to add risk, and that is what is being done in so many ways. We hedged last year at $6.50, why, because it was $6.50. No problems for us to have left some upside open to seek more. Their problem is losing more money than what would have been gained if they were right and the market went up. Next problem is until hedged they still have risk. That is not a good plan for risk as a trader, nor as a hedger. Throwing your hands up like a baby and say "if I don't get at least $5.50 for my corn, then I am just going to take my bat and ball and put it away until next year" is not a plan to hedge!     
 
Talking a week ago like a bull with their horns out, now are getting very uneasy and emotional and want to "start" to hedge worried now what they should have been in the first place, what if the market goes down. That is why you hedge, because you want to reduce your risk. They were not hedging, they were GAMBLING and what is worse is that it is with YOUR MONEY if you listen to them. 5 years ago I went into much more detail about the fundamentals, and that is when the analysts were not that far apart in their guesses, but as you have seen over the years and especially the last 2 years, I am off that game, no good comes from things the more they are a guess. I have seen the harm fundamentals do in 40 years for the herd who are trying to justify keeping them in a losing position longer than they should have been. You have learned from me that you can totally control what you do, and control your risk at the same time, and have learned to look at it like you should when it comes to marketing any product, the price, the risk if not sold, and the reward for waiting for a higher price. Not the reasons why the market should go higher, and throw your hands in the air if it does not. I remind you all year long that farmers and speculators should never assume that they can just do what they want and then just hope that it all works out for the best; if they failed to plan, then they planned to fail. 
  
We hedged December 2013 corn 100% last year at $6.40 and $6.50, and we have always had some protection and a plan to pursue the upside cheaply, what was in all these services plans that you could call it a hedge?  I do not have a problem trying to sell it $.40 higher, but I am not going to watch the market go down more than $.40 and do nothing. If I thought it could go down the same as going up, I risk nothing and just hedge (or exit the trade there). At $6.50 if I was looking for $6.90, I would have been out at $6.10 because I never want to risk more than I am willing to make. My producers have accepted this and do the same. They are not worried about selling the low and watching the market rally, they are now more concerned with losing more money than what was willing to be made. I only risk money when at a chart location to do so, and if the risk reward is unclear or not in my favor at the current price, I do nothing.

The problem with options is, without knowledge you can be right the market but wrong the option strategy used and lose money, and with option knowledge you can be wrong the market and still make money using the right strategy. Most people enter options positions not fully understanding the possibilities that can occur if the "what if" or unimaginable happens. That is why services that used the strategy of selling 2 outright calls to buy 1 at the money put, and got killed the last 2 years with record high prices being posted. Instead of making more money like my producers both bulls and bears did, they got killed and some were forced out taking big losses not being able to control margin requirements. We always have a maximum amount of margin requirement with our strategy (except we can sell outright calls when in the bin to cash sale) and all made windfall profits and participated in the rally, being protected the whole time. Having some protection allows you to be unemotional when the market does rally, and the mindset of getting most but not all of any rally allows you to never sell away all the upside no matter how high we go. 

Bottom line, you want to be self directed in a world where so many are predicting the unpredictable which is a fool's game. Do not be a fool or victim any longer, know what you are doing and why, assume the risk that you want to limit yourself to, not a "one size fits all" made by someone else, and since nobody can possible know where we will be at the end of August, protect some of your risk as you pursue higher prices. Try my service and renew it monthly because it truly helps you, not because you subscribed for a year and in a few months is worthless. Let me have a few contracts of 2013 or 2014 crop to hedge, and compare to whatever else you are doing, within a year I will have all your hedges for one reason, I earned it.

Much of what I wrote is for a new article I will publish online soon to try and "wake up" producers to what is out there. Even if I do not attract new producers, it should help them understand more to what the pitfalls are out there, and how the wrong mindset only takes one time to destroy a lifetime of work, and "bet the farm" is real. Like in life, take nothing for granted.

Price check reference: December 2013 $5.10/$4.80 put spread at $.10 7/8, the $5.50/$5.10 at $.20 ½, $6.30/$6 at $.23 ¾. The $6.50/$7.20 call spread at $.06 ¼. The December 2014 corn $6/$8 call spread at $.34. 

November 2013 soybean buying the $12.80/$12 put spread and selling the $13.60/$14.60 call spread settled at $.15 3/8. November 2014 soybean $13/$15 call spread settled at $.46 ½, and the $14/$16 call spread at $.28 7/8. 

I want to trade the numbers when at the extremes, risking little to see if the chart level holds, and if it does I will be rewarded nicely. I will send my take on the report as soon as possible.

 

Want to know what I think for tomorrow and going forward?
What do you do now if you are unhedged? Take 1 month to follow my service and learn for yourself in real time, it is easy to understand, and gives you complete control to gamble or not gamble upside and down, and completely reflect what you think, not on someone else's GUESSES. Or you can use my services and hedge through a CBOT member firm with your own account. I can execute your orders with a 3 way call to my friend who is a floor broker who fills our orders, and you will hear the bids and offers and can execute then, or place a working order until cancelled. You will also be able to work with me and I will answer all your questions until you understand at least the initial hedge BEFORE you implement it, and I will go at your own pace.

The markets covered daily are Soybeans and Corn.

My numbers usually are sent out before the night session begins. Subscribers especially speculators use them as best suited to their own needs and sometimes that involves the overnight trade.

 

HowardTyllas Daily Numbers & Trade Ideas is designed for hedgers to use for long term and short term hedges, and for speculators to help you plan your trading strategies for the coming day.

$199.00 USD for each month, renewable monthly

HowardTyllasDaily Numbers & Trade Ideas $ 199.00

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Howard Tyllas

Put yourself in a position to make money, use the daily numbers service!

Email: dailynumbers@futuresflight.com
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   Tel.1-312-823-9189,  1-702-405-7245

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 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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