Hedging July Soybeans & Trade Ideas for 5/24/13

Published on: 18:31PM May 25, 2013

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This report was sent to subscribers on 5/23/13 3:30 p.m. Chicago time to be used for trading on 5/24/13.

July Soybeans

After the close recap on 5/24/13: My pivot acted as resistance and was 15.10 1/2, .04 3/4 from the actual high, and my support was 14.70 1/2, .00 3/4 from the actual low.

All charts and numbers for 5/28/13 will be sent in 2 hours from now.

July Soybeans 

Use the same numbers as used on 5/23/13 

15.45                          May contract 2013 High                               
15.24 ½                      May contract expiration price                               
15.10 ½                                                      
------------14.94 ¾      Pivot           
14.79                          Bracket Line support                                  
14.70 ½ XX                                 
5 day chart...         Up from last week same day                                                          
Daily chart   ....    Up                 
Weekly chart ...   Sideways                         
Monthly chart ....Sideways         14.32 is the 200 DMA
ATR 27                                         Balanced 66%

For 5/24/13: I still say "May contract provides resistance, daily numbers support".  
November I continue to say "$12.40 ½ is pivotal; bracket line at $12.05 ½ is support, $12.80 resists.    

In my July daily soybean numbers on Thursday my resistance was .01 ¾ from the actual high; my support was .08 ½ from the actual low.        



Grains: "Old crop cash grain markets" are like gunslingers from the Wild West; they have no problem riding into town and shooting it out with anyone who gets into their way. Maybe in the past it seemed like the hedge services and cash sources were like "sheriffs" and were there to protect you, give you "fairness" when selling your grain, and the advice they give you will help you get a better price in the end. But the reality is that many of the same services that "help you" sell for a higher price are the ones who will be buying the grain from you. Conflict of interest? They make matters even worse by having their hands in the seed you buy, and the fertilizer you need. When the futures price goes up, so do the input costs, and when the futures price goes down, input costs slowly come down, kind of like gasoline prices at the pump. The little guy has no control, and is like sitting at a poker table with $100 when the other players have $1,000,000 or more. They can bluff you because losing $100 means nothing to them, where $100 is your entire stake. They can lose $100 by calling a bet without blinking, but with a $100 wager you must decide if this is worth the "final bet" if you lose. In our case, the small farmer is under attack, and the big producers are the ones who are trying to push the small farmers out of the game, and they will be there to buy your farm from you.

My producers have been feeling this for quite some time and it is getting worse, and the main reason that the last few years (since they have my service) that they have posted record profits in spite of what is being "touted" out there, is the fact they became self directed and only need to focus on price, not fundamentals or market chatter. They learned to not risk much on any idea, and that they do not to make every penny of every move up and down.

The cash market this year is like the Wild West, and the reason I said I do not want to play because of the lack of control producers have in the cash market. The less control you have, the more of a victim you become. As a trader, when risk/reward becomes unreasonable, or when things become illogical like today when July went $1.01 over the August contract, I get out and stop to participate in that kind of "crapshoot". Just because I made a lot of money, or "that is the market I trade", is no reason to participate when things get too extreme. I run from it, not get my feet stuck in it. The less control I have, the less I participate. Yes, I can day trade it using my numbers, but holding a position overnight I need a known risk strategy. It is a big difference in trading a futures price with a futures contract or options based on the futures, it is another to participate in the cash market. If the market rallies like it did, the futures make penny for penny with the futures market, whereas the cash market has not reflected what the futures have done and even lost sometimes as much as $.70 in the last 3 days.

Just like the PRC cancelling sales and paying the penalty such as $.50, but then buying it again at the same time for $1 cheaper, the cash market is inventing new ways to make money, and the farmers are on the wrong side of the profit equation. Yes, farmers are getting record basis levels, but it seems they are the one who gets the rug pulled out from under them.

Bottom line now is the same for the futures and cash markets, they can and will do anything. My producers who are keeping a few old crop contracts are looking for the cash to pay way up for remaining old crops, and with 2008 wheat as an example of what cash could do is the reward they seek. They are playing with 10% or less of their 2012 production, so even though the risk and reward is great on each contract, it is a small part of the total production revenue. Just as we have seen all time highs last year, and record or historic spread inversions this year, cash markets are doing its share of volatility. Option volatility jumped with July soybean calls and puts both closing higher on the day. It costs more now to be long or short.

Do not take your cues from the cash if trading futures; do not take your cues from futures when trading the cash. I would have been out of cash soybeans long ago; there is always another trade idea down the road, or opportunities at a support or resistance that I have control of, instead of in the cash market where I have NO CONTROL.  

Back to the futures market, where we are in control of what we do, or not do. July soybean bulls were in command and had little resistance on its way to a $.50 rally, and the objective was clear, to get the shorts buy stops just above the May contracts 2013 high. That is the reason my approach since day one has been, to have daily numbers that I could trade with and be prepared to know where a good place to buy or sell that day no matter the reason why the market got to my numbers. Nothing changed in the two hours it took to run up and down, the only thing that changed was the price. As a trader I could care less the "reasons" the market moved, I never made money from getting the reason right, I made money only when I could sell something for more than I paid for it, or bought it cheaper than I had sold it for. I do not care what a market does once I am out; I care what the market does only when I am in a trade. The fact it gave back almost the entire $.50 gain, the market has a much better chance to sell off from here. If it had closed lower, it would be a "blow off top". It did make a "double top" on the daily continuation chart. This will be a major resistance going forward.

November soybeans are now more influenced by the old crop new crop spread, than new crop pricing alone. July/November was $3 on Thursday, so even if November is up and July is down, it would not indicate any strength in the new crop.

July corn got the buy stops just above $6.69 ($6.69 ¾ high), but could not come close to filling the strong resistance of the big gap left at $6.76. Corn finished well off its high, and looks to close lower on Friday when the June options expire.

December corn is functioning like the new crop soybeans, it is not being priced on its own merit, but rather being used a tool in spreading. The $.60 rally produced in the July contract, allowed a $.25 bounce in the December contract.

You are not going to damage the crop over this weekend, and threats and actual weather concerns are not on the table right now, so the bulls will be hard pressed to keep this rally going without a pullback first. Soybeans went to our top expectations, but corn failed to complete at least the mission of "filling" the gap at $6.76. If the cash gets strong again, it will little influence the futures. Everyone was complaining why the futures are not reflecting the cash, now they are above it! July is over the cash, but cash is going off of the August. If they are paying $.50 over the August, they are paying about $.40 under the July contract.

I am bearish today, and I am bearish Monday too, then I need to see my opponents move to tell you mine. June calls to be rolled to July, I would not give much room above my put protection because I am not bullish at these price levels, and I would rather have $.08 in my pocket than $.20 more upside. The take away for bulls is I would not expect too much from this level, and the bears more of a green light from me. I could be wrong but this is chart based and unbiased opinion. You can be right and the futures market can rally another $.50 or more from here, and if you bet on it you will be rewarded. I would not be surprised if we go up or down $.50 from here, but as a trader and at chart resistances, I want to sell. Fundamentally I want to be short until a threat of a production shortfall occurs.

Make sure your position going into the weekend does not affect you if we are up or down the limit on Monday, that way you will have a stress free holiday, and not have a thought on what the market will do on Tuesday. Then you will truly be able to walk away from the market, yet be protected if it goes down, and in a position to make money if it can rally. This is what I do as a trader, and that way I can have a life and truly have a "day off" mentally. I do not want the gamble unless known risk going into the holidays. Markets are closed, be with the family not in just body but in mind, and that is hard to do when you worry about the gamble that waits when the holiday is over. ALWAYS be comfortable with your risks!

I want to take the sell signals only today and risk .03 ½ in corn and $.06 in soybeans using a buy stop to protect the idea.               


Grains: July soybeans made new 2013 highs, and the rally will stop when it stops. My resistance numbers are the places where I would take profits if long, and sell to go short. The few producers I have with old crop hedges have locked in at least another $.30 since they sold June calls. The ones that did roll to July already have another $.30 to $.50 more coming if this was expiration, but have yet to roll up the put to the call strike sold. With the August futures contract $.87 less than the 1 month closer July, it is a big risk big reward to hold cash soybeans.

November soybeans had nowhere to go but up being near support for 2013 and with the old crop performance so strong. $12.40 is now pivotal, $12.80 resistance, and $12.05 ½ being the bracket line support. That should be the parameters until the June 28th report. When near support, look at improving the upside by rolling down "cheaply" out of the money calls you are long and reducing the call spread you sold. Here at the pivot, and especially near $12.80, look at improving your downside protection.

July corn ... Subscribe now!

The next few weeks, July soybeans can and will do anything, November soybeans will be range bound using the parameters I gave, so take advantage of the swings. Its future depends more on crop production than all the rest of the fundamentals combined. July corn looks "heavy" but range bound. December corn has established the parameters as it waits for more information on crop production. So take advantage of the price swings, but for now our current coverage allowed us a stress free ride. Anytime protection gets cheap and you need more, get it. 

I expect choppy sloppy trade going into this 3 day weekend. June options expire this Friday. The direction is sideways but can change once we come back from the weekend. I want to day trade the market without bias and risk .03 ½ in corn and .06 in soybeans using a stop to protect any idea.  


Grains: No surprise the market came $.01 from filling the gap support of $5.11 which is also multiyear low within $.01 each year. Cheerleaders with the name "Bears" on their outfits were also disappointed, and the same reason I am not a "cheerleader" breaking through a significant resistance. My service has taught you the exact opposite. When at a significant support I want to buy and risk a few cents to see if the chart support will hold once again, and if it does I am rewarded nicely, and if it does not I only lose a few cents on the idea of buying chart support. When at a resistance I want to sell and risk a few cents to see if it will hold, and if it does I am rewarded nicely. I KNOW the reason I take a trade, I KNOW where I am wrong and why, and I know where my objective is. Try taking a fundamental trade and having no foundation like I do, how can they tell when they are wrong and limit the risk, and how do they know when to take a profit? Services that have told farmers to hold onto their corn if they cannot get at least $5.50, and sell it in 2014 or 2015 when the price goes up. Really? Really! Bottom line is even if it does get back to $5.50 or $6, was it worth the risk and wait?

What is the difference between $5.95 now and $5.95 back in January? To us, $5.95 is $5.95, and the reason we extended down protection from the $6.50/$5.90 put spread to $6.50/$5.50. Oh, they thought and the services "touted" higher prices, and now they trimmed their expectations, so the "non hedge" until we get higher prices was really the mask for actually "trading the market" from the "bull side". The way we hedge, we use the charts to initiate a hedge, and protect at least $.50 down in case the market does not go higher. We buy even more protection when needed and maybe even sell some upside to pay for it. If it goes higher we will make even more money than the original hedge, and at expiration depending how bullish or bearish or neutral you were (you could be both bull and bear as time went on) will determine how much you captured and the cost for doing so. 

A few of my producers called in and lifted some calls in the old crop, and some took off spreads in the new crop, and some were on the verge of buying more protection but held off for one really good reason, we were at major yearly support. Since buying a put spread is the same thing as selling the market, they all knew they would need to pay a little more below $5.10, but with $5.11 just a few cents below as support; you cannot sell where you are supposed to buy. They all held off. The market proved at least for now, that there was not enough selling created from the planting progress to take it down below $5.11 at this time, but a good forecast for pollination would be easy to go below it then. Old subscribers know all too well that my chart lines are not coincidence and you can see and know how the lines are made and that they are not random. You see and know the reasons they are drawn too. So no surprise it held again. If and when it is broken, $5.10 will be a resistance to be reckoned with.

So here we are, grain market counting the days, and watch the crops grow. Now as always, no matter the "news" or reasons the market goes to and especially an extreme, take advantage of it and risk little to see if the chart level holds. This is what I as a trader have always done, and you my subscribers are doing when you wait for a chart level to risk little on YOUR thoughts and ideas, no matter going long at a support, or selling at a resistance.

July soybeans are nearing their 2013 high so I am indeed a seller for that fact alone, or at least not be long below and so close to there. November soybeans are going nowhere fast, same price parameters as before. 

July corn ... Subscribe Now!

I want to take the sell signals only in July soybeans and risk $.06 using a buy stop to protect the idea. I want to trade corn without bias today and risk .03 ½ using a stop to protect any idea. 

 Want to know what I think for tomorrow and going forward?

The markets covered daily are Soybeans, Corn, and S&P's.

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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 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.