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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 Hedging & Trade Ideas for 4/15/13

Apr 16, 2013

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This report was sent to subscribers on 4/12/13 11:30 p.m. Chicago time to be used for trading on 4/15/13.

May Soybeans

After the close recap on 4/15/13: My resistance was 14.19, .00 3/4 from the actual high, and my support was 13.92 3/4, .01 from the actual low.

All charts and numbers for 4/16/13 have already been sent to subscribers at 2:40 pm.

May Soybeans


14.49 ¼ 200 DMA
14.36
14.19
------------14.12 ½ Pivot
14.06
13.99 ½
13.92 ¾


5 day chart... Up from last week same day
Daily chart .... Sideways
Weekly chart... Down
Monthly chart ....Sideways 14.49 is the 200 DMA
ATR 22 ¾ Ex. Overbought 90%

 

 May chart is on top; November chart is on the bottom. 

For 4/15/13: Daily numbers support and not much resistance above $14.19 until $14.49.


November support is $12.20 1/2, bracket line resists at $12.58, downtrend line is next at $12.60.Bracket line at $12.25 1/2 is pivotal. Day resistance is $12.35, $12.39, and $12.48.


In my May daily soybean numbers on Friday my resistance was .07 1/2 from the actual high; my pivot acted as support and was $.02 3/4 from the actual low.

4/15/13:
Grains: Old crops greatly gained on the new crops, and posted a nice week for the bulls. That could continue in an up or down market this week. Friday was a low volume choppy day. Everybody knows what the reports had to say, what the weather and forecasts are, and have placed their bets on their perceptions of the fundamentals. I know enough that I would not bet on any of those factors, and feel comfortable to trade what opportunities I see in the charts instead.


December will benefit from the strength in the old crop, but faces stiff resistance at the bracket line at $5.71. The newly drawn downtrend lines at $5.62 and $5.66 comes first. There is no fundamental reason I can see without weather for December corn to get past $5.71. Below the bracket line which is now support at $5.47 will warrant a test of the low this year of $5.25 1/2. The low of 2012 for this contract was the gap low at $5.11, so as far as I am concerned this "double bottom" will be strong support this year, and will not be broken until
 
May soybeans posted over $.50 in gains this week, and clawed back half of the losses since the report 2 weeks ago. That $14.60 should be strong resistance now, and the low posted last week should be good support. We are also almost back to the middle of the bracket line support and bracket line resistance, so I have no bias whatsoever, and would flip a coin, you call it!


November soybeans tested the bracket line support that goes back to July and could be a "double bottom" now at $12.25 1/2 (low of $12.20 1/2) and will be strong support until broken. The downtrend line coupled with the bracket line resistance provides major resistance now at $12.62 3/4. If you have not already, seriously think about buying some call spreads back if we get above $12.35, $12.39, and certainly if above $12.63.


Old crop is to be day traded under these conditions, new crop for longer term trade ideas. I want to sell new crop corn or soybeans if the market can rally to a strong resistance level. In less than a year we have seen record high prices, record inverse carry charge spreads, and it would not surprise me to see more spread records fall. Last 5 years should have prepared you for whatever is to come, new highs for the year, new lows for the year, up, down, sideways, or inside out. Just try and take advantage of the pendulum swings when you can, and limit your risks. Participate, you can be long or short and control the amount wagered precisely the way we are using options, and you can be bullish or bearish short term and reflect it by a "morph", and might be the opposite in the long term, but whatever you do your position should reflect what protection and upside you want ON EXPIRATION.


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You are always long or short from the last trade price, as well as the unhedged producers, so always make yourself comfortable with your hedge as time goes on. If you are bearish, the best thing to do is to stay ahead of your coverage and at the same time give yourself a little "wiggle room" in case the market rallies. You want to be rewarded for being wrong too! As you have seen me say many times, call spreads sold for $1 or more and collected $.20+ has done their job considering they are worth less than $.05 and there is more than 7 months remaining until expiration. These market can move "faster than a speeding bullet" so I always keep in mind that "markets can and will do anything". Knowing that, I always want to not risk much on any idea, and even though I am bearish in the long run, does not restrict me from thinking and planning for the "what if" rally and buying back a call spread or selling some put spread by now. Like you did in the original hedge and did not collect money from that call spread not sold, and what was not collected was same as you paying for it. I am risking little to gain much more if it does. If I stay in something worth $.05 after making $.15, I am risking much more than what is to be gained, and will take a long time to collect. I really like to make money when I am wrong.

"I continue to prefer to take the sell signals rather than the buy signals, but day trade without bias and risk $.03 1/2 in corn and $.06 in soybeans, which was all that was needed to make winning trades on report day without risking much on any idea."

4/12/13:
Grains: I also recommend buying a call spread such as the November $14.40/$15.40 call spread if November soybeans trade at $12.53 or higher. The stop prices for the futures are both valid, but adjust the strikes to suit your needs. If you know this is what you want to do, or at a price level at another resistance level, then it takes the responsibility out of your hands for execution of what you want to do without hesitation or second thought. The thinking was done when you placed the order, and you are being responsible because you placed the stop order that takes care of risk.


The market was being mostly driven by spreading old crop versus new, and the May contracts against the
July, especially corn. I would not want to touch the old crop spreads, but if I was day trading it, I would want  to day trade from the "long side" (long May short July) and would take home only a few at best. Same goes for  soybeans. Both soybeans and corn bull spreads widened on Thursday, but May. December corn was trading  much of the day at $.08 gain to the May versus the December, but huge profit taking before the close brought
that spread back to only a $.01 gain for the day at settlement.


May soybeans need to make a new high for the week and close higher to turn the charts friendly, a close over $14.11 1/2 would be bullish. November closed out last week at $12.28, and needs to close above the bracket line support at $12.25 1/2 that it kissed on Thursday. As long as above there the bulls have a chance, and it seems that the old crop is saving it from lower prices considering it is up $.39 3/4 for the week on Thursday's close. I continue to want to sell any rally at resistance, or below the $12.25 1/2 line especially for new hedges.

"I continue to prefer to take the sell signals rather than the buy signals, but day trade without bias and risk $.03 1/2 in corn and $.06 in soybeans, which was all that was needed to make winning trades on report day without risking much on any idea. Corn broke $.32 1/2 on report day from high to low; you always need a plan for risk".

4/11/13:
Grains: Report highlights I feel have meaning: USDA kept on farm prices unchanged for soybeans at $13.80 to $14.80, and $7.80 for wheat down $.05. Corn price was lowered $.15 for corn down to $6.65 to $7.15. Corn ending stocks came in at 757 MB (bullish) down from the trade estimate average of 812 MB. Ending stocks
for soybeans fell 11 MB below expectations to 125 MB (bullish), and wheat added 4 MB to 731 MB (bearish). SA corn and soybean production came in over expectations (bearish). There was a 10+ MMT gain in world grain stocks (very bearish and shows how high prices destroys demand).

You can see the face value of these numbers for yourself, and I shrug my shoulders and say, I don't care, but  all these services that have nothing to write to actually help you understand at least the risk reward that you face, or have substantial amount of risk hedged one way or another, they only have their take on the fundamentals to sell, and they tell you the fundamentals are the reason for you to continue to assume the risk of being unhedged. Or they tell the speculators what the market should do (go higher or lower) based on the fundamentals, they can sell that. What they cannot sell is becoming self reliant with no need to even know there is a report out. Do you really think that a trader on the floor is going to leave the pit to go read what the report had to say? Traders know what they are doing, and the mere fact that you cannot read and trade at the same time proves what I have been saying, you never know what the market will do but you should always know what you are doing and why. Your goal should be to become self directed.

The drivers are now the funds willingness to keep their long positions, farmers' willingness to sell, and the end users need or want to buy. For me this is bearish. Time is on the side of the bears until weather becomes a factor, now it is not. I am not going to trade the weather through grains especially at this time. It is all in the charts, when it gets to a resistance it should find good sellers, and when at supports you will find buyers. But the sellers should have much more confidence selling the resistances than buying unless at a strong support level.

It would be impossible to read the report or just get the key numbers, and trade. The electronic session found their computers respond to the numbers and initially became buyers that set off buy stops that probably set off more buy stops because of the lack of orders working going into the report. It was thin and probably not liquid. But whoever was long and seen windfall profits or wanted to go short, sell orders flooded the market. Of course

I continue to prefer to take the sell signals rather than the buy signals, but day trade without bias and risk $.03 1/2 in corn and $.06 in soybeans, which was all that was needed to make winning trades on report day without risking much on any idea. Corn broke $.32 1/2 on report day from high to low; you always need a plan for risk.

4/10/13: Grains: As you know markets move up and down and in between, and in volatile markets it happens many times. So if you look at the last thing you do as being right or wrong in the short term, it can be right later on, and then wrong again as time passes. It must be the right thing for you to do when you do it (or why would you do it), not what the market does afterward.

The report comes out at 11am today, so you do have some time to adjust your position to be comfortable no matter the result. I looked at articles today and have seen the same "stories" for decades. Some do not believe the USDA numbers, and 99 out of 100 of them are the people who are on the wrong side of the market. The average guess for corn stocks is 812 MB, so old crop depends on what the numbers show, as well as production and demand estimates from around the world. I read an article that is already saying no matter what the USDA says, it is incredible. Even if you agree, that would mean you are taking the word of a service over the word of the USDA, and let's say you are ok with that too, but how do they get THEIR numbers and how are they more accurate, when the government has a vastly larger bureaucracy to gather information? I am not telling you to believe anything, I am telling you the USDA numbers are the USDA numbers, and I do not see the market all eyes at attention when these analysts' numbers come out. When these same analysts look at the past, they are always comparing themselves to the USDA; the USDA does not compare itself to these analysts.

The bottom line has always been for me, I do not care what the report says, I care how the market reacts to it. Fundamentals does not put money in your pocket, the price does. As you know, bullish reports are being sold within 4 days in the last 18 months, and this is always in play on report day. If the report is bullish or bearish, that will not tell me to buy or sell, the chart does that for me. Yes, like the last report, I said it would go much lower and it did, and did not expect too much more after it going down $1, and now here we are correcting
where it came from, reducing the commitment to further downside at this time. I have wrote this every time needed, and if we were at the bottom right now especially near a long term support I would tend to buy it with a known risk strategy, and if we were at a resistance and an extreme at this time I would sell it with a known risk strategy. My opinion does not drive my trading, my charts do. Yes, I can get a bias like the last report, but that is what it is a bias, not a trade idea.

You can say all of these services are "cold" right now, they could not pick their nose let alone a winning horse you would say if you were at the racetrack, so why would you listen to services who has been "handicapping"
the grain market so poorly, and getting down to making their "last bets" to try and get even? We started to do something at $6.50, I even have one producer that bought the $6.60 put spread from September 2012 and hedged the last one in December at $6.60 (the December 2013 corn), and has kept it and "morphed" down to  $5 4 months ago. Almost everyone hedged at $6.40 or higher, what have they done? Wait, sell it in the spring  or summer, sell at last year's high of $6.65, and now even some suggesting selling it next year, are you  kidding me? Many are still holding 50% or more of last year's crop, are you kidding me? Are they producers
or investors they are giving advice to? Watching all time highs come and go and still not selling or at least hedged, and they are suppose to reduce your risk, is like me trying to perform brain surgery, they should have someone else do it. Instead of reducing risk, they lost more than they were willing to make, and nothing says the market cannot keep going down.

They do not have a plan for risk as their strategies have clearly shown, and even some who sold the old crop recommended buying a call and selling an out of the money put (or 2) to pay for it, are now long once again since the puts are in the money. Strategies like that put you at risk, not take it off the table. BE SELF DIRECTED, you could not have done worse than what seems to be out there, the worst you could have done was like them, with most being at least 60% unhedged right now.

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