Today Was About Short Covering

Published on: 15:41PM Jul 17, 2009
Short covering was the name of the game for all commodities. After yesterday’s strong down day, many sellers decided to take their profits and run. The concern about the cool conditions developing next week seems to be overpowering the concerns about Chinese grain sales. 

I have to say its way too early to talk about frost. Yes, the crop is pollinating a lot right now, we need a full growing season, and yes it’s unusually cool. I would equally point out that Monday’s crop conditions ratings will more than likely show overall improvement rather than the seasonal decline associated with hot and dry July and August pattern.  
I still anticipate a sideways to lower pattern into the end of the month to early August. I’m working under the assumption that December corn will find it extremely difficult staying below $3.05 to $3.10 for any length of time right now. I’m planning for a low five days before or after the August USDA Supply and Demand report. Then a short covering and rally to put in some weather risk premium into early September. If the frost event does not show up and we have a cool but weather free event until mid-October, I have to suggest that corn and beans will make new lows in October on harvest pressure. 

What to do:
  1. All corn and bean hedgers with big profits should start preparing for the September bounce by early August. You can roll deep in the money puts to at the money positions. Buy short term call positions to defend futures. Or take off position entirely.  At this time if we could see December corn at the $3.05 level and November beans at $8, I would suggest taking profits.
  2. For the feed buyers out there: I believe you have to buy the August low even though the potential for the October low being lower does exist. As for the speculator, I would suggest you start selling puts and bull spreads and wait until a good technical double bottom before using futures. We will be talking about the different type of buying strategies in an upcoming special report for all our clients. If you are interested, you will need to be members of our internet site to get the publication.
In summary:  We are approaching a time and price where sellers need to start adjusting their thinking and be satisfied with the profit. As for the buyer, I believe we are going to have a lot of time to buy. I would start being cautious and only get aggressive when you are well into harvest and you have a solid technical close above resistance. 

If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at [email protected] or [email protected].

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