Professionals like bear markets!
Nov 19, 2010
Many professionals like bear markets because of their speed. The current January soybean contract had a report high of $13.48-1/2. In just four days we have seen a $1.73-1/4 break or about 38% of the total rally from July now.
Now that we have experienced such a strong correction, we suggest most of the weak longs have been [liquidated] forced out of the market. Producers with old and new crop inventory will most likely be more motivated to sell on a retest of the recent highs. The short-term net impact is move inventory will move into strong hands and develop a pool of short positions in the market. The long-term net impact is, if anything does happen to the South American crop or we do confirm a loss of 2 million acres and carryover gets dangerously low, the possibility of squeezing the market to the upside is significantly improved. Thus, we believe producers should move slow on selling their expected 2011 crop. If and when producers do sell, consider buying puts rather than cash or short futures position. Remember, we’re not predicting a big price event; the conditions are possible. So when we recommend producers start selling $12 to $13 NOV 2011 SOYBEANS to lock up PROFIT, we don’t want wide swings in the market to force those using this strategy out of their hedge position.
Please note that we have focused more aggressively on buying corn calls rather than soybeans calls because of the cash flow required. If anyone is interested in buying calls, we suggest moving sooner rather than later. While today’s 30-cent move is impressive, the upside potential is still significantly greater than the downside risk, in our opinion.
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