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Hedging march corn and commentary for 1/27/15

Published on: 15:51PM Jan 28, 2015
 

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 March 2014 Corn


3.91                                                           
3.88 ¼                              
------------3.84      Pivot    
3.79 ½                             
3.75 ¼              Bracket Line Support 

5 day chart….       Down from last week same day       
Daily chart …       Sideways, turns Down below $3.75    
Weekly chart…       Down              
Monthly chart…Down  4.10 is the 200 DMA
ATR 9               Balanced 26%
 

 

For 1/27/15: I continue to say “Bracket line at $4.06 is resistance, bracket line at $3.75 ¼ is support”.    

In my daily December 2014 corn numbers on Monday; my pivot acted as resistance and was .01 ¾ from the actual high; my support was .00 ¼ from the actual low.                                      
                                              
In 2010 $3.24 is now support and was the bear’s target, with the next objective of $2.90.                     

1/27/15:

Grains: For the last 6 months, corn has traded much of the time between $3.75 and $3.95; consider this price range as “fair value”. Four years in a row corn production has outperformed demand/usage, which will really be trouble if we get a normal crop again. 2012 and 2013 they killed the crop more than once, and that should be a reminder to new subscribers that “talk is cheap”. Long time subscribers have learned as a foundation for every year 1. Think what you want but always have some kind of hedge 2. Never try to get the fundamentals right, always try to get the price right.

We might be in troubled waters now, but about $1 away from the first major storm that can kill. If 2015 produces a normal yield as a whole around the world I look for $2.90, and next year with another normal crop, look for $2 by the end of 2016. As producers are worried about $.25 here or there now, unless you heed my warning, you are like a tree in the forest and cannot see the forest is burning and it is going to eventually reach you. Same goes for soybeans, $7.90 this time next year, $6.50 by the end of 2016. Front month soybeans traded $5 in 2006, before the bio fuel mandate took effect, and $4.15 to $5 is where soybeans traded in 1999 to 2002. Current fundamentals show those projections are not only possible, but more than likely with a decent crop. NOBODY knows, and they can kill the crop along the way causing a rally, but the reality is you can only count on the extreme “what if’s” as parameters. And as far as guessing yields, it has been very hard for my producers to come within a few bushels on guesses made the day before combining, so what make you think anyone can be accurate 30 or 60 days before? EXPECT a normal growing season this year.

Everyone can be lulled into thinking that the unimaginable cannot happen; I want you to think that it will (another good crop this year and maybe next), because if you prepare for the worst, only a better result should happen. Do not get caught this year thinking all is well, it is not, and nobody can predict what Mother Nature will bring.

As far as bad weather this year, the drought cycle we talked about greatly since I started this service until 2012 happened, and was last seen in 1988, and what I learned early in my career, droughts occur every 19 years since weather history was recorded, and we have not gone more than 5 years before or after the last drought. 2012 was the fifth year since the last drought of 1988, and if there was not a drought in 2012 we would have broke the record timeframe without a drought. 2031 is the next drought give or take 5 years, so looking for a drought this year is a real longshot historically speaking.   

I want new subscribers to think twice about defying the odds. I want you to think what you can lose from here if the market goes down, much more than what you will gain if it goes up. I want you to stop thinking you will analyze your way to what you think grain prices will be in the future, and that price will actually be realized. Instead, I want you to realize what you do know (the last trade price), lock in whatever that is, getting the protection you need, and exactly reflect the upside you want. From there you can take advantage of the market swings cheaply, instead of a gamble that should never be taken by a producer such as buying an “at the money” $.50 call spread for $.17. Buying out of the money or at the money calls or puts even worse. But now you have learned my strategy using options where in soybeans you can get $.80 at the money protection, get $.80 upside in your ground/bin unscathed, and lose it for $1 “up there” before you get your soybeans back again. How else can you get $.80 up and $.80 down for $.10 or less? (Ask your broker, he should know) Your advantage is knowledge, true wisdom passed to you that quickly makes you self directed. Like my long term subscribers know, you will never pay for someone else’s opinion again, you will value your own above all others. Everything you do is based on fact, all risk is known, and all protection is known. You make decisions based solely on the charts, where you clearly see what protection is needed, and what the potential for the upside is. Never will you be random again and listen to the calls for a price never seen before such as $10 corn. The charts tell you the reality where in the past and present highs and lows are, and that is a great place to start to see what actually has been support and resistance, that could be tested once again in the future. Knowing what you are doing, and why, is much better than any weather service, crop scout, big name, or any other service trying to predict what is impossible scientifically to get right…….only Mother Nature has the answer before harvest.  

Unhedged producers in today’s world, are their own victims, and can do nothing to protect them if the market goes down. So the reality is this, it has nothing to do with how well you do in production, get more BPA than normal, but if the market goes down another $1, yes you did well producing; you were disaster as a gambler. No, it is not a part of the business of farming, not when you have ways to reduce risk. My producers have been 100% since September 2012, and most are 100% hedged through 2016 for more than 6 months now. It is up to you to reflect when to hedge, but as I have seen over the years, the more of a gambler they were before they met me, are now the biggest believers in being hedged fully, and get up or downside back when cheap. They do not need to predict, they only do something after a big move and it has a cheap known risk. Why over the years do I get so many people say to me, why is things so easy, mindset reflects an easy no stress approach, why is these things not common “out here”. Maybe it is my 39 years as a trader, who is using the option strategy I used when long futures to reduce risk, as the best way I know to hedge grain.

Soybeans should be sold on any rally, and the first place to sell is against $9.92 ½. We might not be able to get past there. When and for whatever the reason it can get near $10.19 ¾, I would be an aggressive seller there. I believe with current fundamentals in favor of the bears in the long run until the crop has a scare, rallies will be limited. I would abandon that idea if above $10.40. $9.51 ¾ is support and $10.19 ¾ resists, the middle or pivot is $9.85 ¾.

March corn has resistance at the half way point at $3.92 ½ with bracket line support at $3.75 ¼, so the pivot is $3.83 ¾.

March wheat puked out to test $5.20 despite all the Putin chatter. Bulls will be in deeper trouble and headed to $5 if below $5.20 support which is now pivotal.

I continue to want to sell resistances first, and take profits at support. I would not get out of my “great bear market” opinion until I see a possible weather scare, and that would be to get my upside back so I can sell it again for a much better price if it rallies. The only other reason to reduce upside and take profits is when there is too much time remaining and much more to lose than what remains to be gained.    

I still say “I am as bearish as I ever was, and continue to tell producers to have as strong a hedge as you feel comfortable with. I want to day trade the market without bias today, and risk $.03 in corn, $.04 in wheat, and $.05 in soybeans using a stop to protect any idea”.   

1/26/15:

Grains: Nothing new to say, and nothing new this week to move the market fundamentally. At best, good export numbers and such only give encouragement to take the buys on that day alone, and you can say that for weeks we were firm on great exports and demand here. Nothing has changed, and corn exports were twice what was expected last week, and that might have kept it from going down, but certainly has not been enough help to advance the price. I am saying, sales are not the only thing needed to produce a rally, more buyers than sellers will do that demand or not. A true bull market has two factors needed to propel the market higher, demand, and tight stocks. One factor without the other will always cause a limited rally. Need both like in 2012 to accomplish that. Stocks were tight and the crop was threatened, causing panic buying and fear. That was the tight supply side. The demand factor is a day to day thing, and no matter the price, when the buying stops, the party is over. All factors said when the price is too high it will stop the advance in price. Once highs have been made and the market is on its way down, I know what the high was and have that price to sell against. I do not need the reason why in 2012 got as high as $8.49 and stopped, that is a difficult task but easy to guess the possible reasons, I just need to know one thing and is easy to get the correct answer, the actual high price posted. Then I can taken sell signals against that number, and use a buy stop just above to protect the idea that $8.49 will hold.

That is called, knowing what you are doing and why. The herd is always buying new highs and has objectives that move when the market continues higher. They move the goal posts on themselves and capture little, and let the bulk of their position on the table at risk at high levels. Usually they are right for a little while longer, but have an even harder time to sell on the way down. They are relectant to sell on the way up, and they do not want to sell on the way down unless it gets back to the level it was at two weeks before, and they chase it all the way down until they throw their hands up in the air and do nothing. If they knew what they were doing, they would be happy to be able to sell at their objective in the first place. When the risk reward is no longer in my favor, I exit, and anyone who made more money staying in that position earned every penny they made. I do not need to make the last $.20 if I already made $1, and if I thought I had better than a 50/50 chance to get that last $.20, I would risk not more than $.10 to get that hard last $.20. The first $.20 of the $1 made was the easiest; the last $.20 is the most difficult to get.

March soybeans have the poorest close since October, and I would sell whatever corrective rally takes place. We might not see $9.91 again, so if we get close to it and you have something you NEED to sell I would sell it, and for a day trade or for a longer term trade idea I would sell it too. $9.51 ¾ low on 10/20/15 is the first support from here.

March corn had a good week rejecting the bracket line support, and getting half way back to the bracket line resistance. This week I would sell near $3.92 ½, and take profits near the bracket line support at $3.75 ¼.

March wheat could not get through $5.45 ½ and should not this week either. $5.20 should be tested this week, and if that goes $5 is next.

Read back the last few weeks in this commentary, everything is still relevant, and should help you grip the things I have been saying.

Looking at the dollar, it continues to gain muscle while pushing the dollar higher to prices not seen since 2003. This cannot be ignored by any commodity sold overseas to a foreign buyer. $4 corn is cheap when their currency is strong; $4 is very expensive when the dollar is this strong. The market can ignore this for a very long time like it already has, but when day when prices are in the basement, they will be talking about the strength in the dollar. They like to think they know what will happen or what has happened, but they really like to pin the fundamental on the donkey that fits. Worthless! I would never sell for dollar strength alone, but if I am short for the reasons I am, and the dollar keeps getting stronger, I feel even better about my long term position. Strong dollar is really a killer of grain prices. The dollar index has gained almost 20% since August……wow!

For corn and soybean oil, crude oil is no help, and could hurt from here. As long as crude is under $50, I look for 2008 low around $35 to support the fall. Weak crude, and weak commodities in general, is no help for the bulls.  

I am as bearish as I ever was, and continue to tell producers to have as strong a hedge as you feel comfortable with. I want to day trade the market without bias today, and risk $.03 in corn, $.04 in wheat, and $.05 in soybeans using a stop to protect any idea.    
 
1/23/15:

Grains: Soybeans rejected $9.91 ¾ and increases the possibility of closing lower for the week, and strengthens the resistance at that price. The low of this week is $9.72 ¼ just above my $9.70 ½ support but is in jeopardy of being broken. Market is oversold, but capable of bleeding lower. I do not want to buy it here except to take profits, but I am willing to sell again if near $9.91. We know where the resistances are, it is a question of what price will support the market the next few weeks. I look for an eventual test of the 2014 low in the next 8 weeks.

Corn rejected the half way back resistance at $3.91 ½ I spoke about, so a retest of the bracket line support at $3.75 ¼ is the current objective, when that goes the objective will be the low of 2014.

Wheat also rejected its resistance at $5.45 ½, and it looks like a retest of $5.20 is next, and eventually the 2014 low.

Sideways to down have been the trend and that should continue. All rallies are to be sold. Hedges are for expiration, not for next week or months. Take advantage if and when the market rallies to capture what you can, and goes down enough to get some upside back cheaply, that goes for old or new crop and beyond. Nobody can predict what production will be this year at this time, but you can know without a doubt what you are doing, and you understand why. That is your main advantage over the herd. You know exactly what your position is and its parameters; there are no questions or secrets about it. The best thing is that you control your position, and you reflect what you think including getting more up or downside, or reducing it when there is little remaining to be gained. This hedge gives you control and reduces risk, not many “out there” can say that. What they can only say is their opinion, because it is impossible to truly be accurate of what production will be in the USA, including a shortfall as well as a bumper crop.

“They” bet on higher a price that is their priority, making sure that you can get the highest price for your grain. But that is really NOT their job, their job is to reduce risk because it is supposed to be a “hedge service”, and if they think that reducing risk means to bet on the upside with no protection, well, you know better. And when they do recommend a “hedge”, from what I have seen and heard, 9 out of 10 strategy or strikes use makes no sense with knowledge that you learned from and have been using since you have started. What you have learned in months seems much more knowledgeable than people who give out most of these recommendations. Not only do you know better use of options, but you have learned what the true task at hand is, protecting yourself cheaply as you pursue higher prices than the original hedge. “Their” task seems to be to get the fundamentals right, and even if they guess right how many jelly beans are in the jar, it does not really help them to discover at what price to sell their grain, or protecting the downside cheaply. By the time they decide the upside is not going to happen because of the change in fundamentals, the market goes down more than they were willing to sell it for if the market went up. You need not guess at all what the market will do, and you do not tell it what it should do, you participate and take what the market gives you when the opportunity presents itself. Capturing extreme moves cheaply is easy, predicting the extreme move is much harder. There is no gamble when capturing more money, there is a gamble when you are betting the market will go up or down. My strategy comes from the one that was my favorite when long futures contracts, to reduce my risk greatly. You my subscribers have learned how to get $.80 “at the money” downside protection, get $.80 unscathed, for about $.10. Remember before you started my service, you would pay about $.30 for a $.80 “at the money call spread”, and now know how to get $.80 up, and $.80 down for $.10. It took about 1 hour or less for most of you to learn, and the more hours you think about it, the more you understand. New subscribers turn into old subscribers, and they hear the same things from me about hedging and the “real time” why, how, and when, every year. What we do does not change, only the price. 

I want to day trade the market without bias today, and risk $.03 in corn, $.04 in wheat, and $.05 in soybeans using a stop to protect any idea.    
   

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