Hedging November Soybean and Commentary for 8/11/14

Published on: 10:56AM Aug 12, 2014

 

 

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Attention Corn & Soybean Producers:

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Are you tired of listening to the same BULL ****, and services that do not have a plan if the market goes down instead? Hedge means to take risk off the table, and my service has all producers 100% hedged and they do have most of the upside unhedged (if we can rally for whatever reason). Hedge with a Pro and option expert who has been trading grains for 40 years. 

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 These numbers were sent on 8/8/14 at 3.00 pm to be used for trading on Monday 8/11/14.

 November Soybeans

 Use the same numbers as used on 8/7 & 8/14
                    
10.98 ¼         
10.94 
--------------10.82    Pivot  
10.70                                           
10.59 ½                                        
5 day chart...         Up from last week same day                                                                            
Daily chart   ….     Down   
Weekly chart …   Down   
Monthly chart ….Down                  11.66 is the 200 DMA
ATR 20 ¾                                                 Balanced 48%

 

 

For 8/11/14: I continue to say "10.88 ¼ bracket line is pivotal on Monday, 2014 low at $10.54 is support.   

In my daily November soybean numbers on Friday; my pivot acted as resistance and was .03 from the actual high; my support was .01 ¾ from the actual low.     

 

All thoughts in this article are of my opinion, and you can have your opinion, but it is my intention for producers to rethink what they are doing, and consider becoming self directed. I do not care what service you use, make sure you are learning a better way to hedge than you are doing now.                
                                    

8/11/14:

Grains: Corn closed just off the contract low but still higher for the week. Soybeans gained $.26 ¼ for the week, buoyed by the August contract which gained $.34 ¾ on Friday alone, and up $.69 ¾ for the week. Dueling forecasts latest winner is the calling for much dryer and warmer temperatures in the 10 to 15 day forecast, just enough to keep the bulls "hope" alive. If corn keeps going down, it will weigh heavily on soybeans. Report on Tuesday is just as important as what the weather forecasts look like on that day. Fundamentals and final crop production will not be known until the grain is in the bin, but perception and market sentiment will swing the pendulum for now. Whatever happens on Monday will be meaningless on Tuesday after the report comes out.   

It is easy for me as a trader to assume risk when I want to, but producers who are truly looking to reduce the gamble and more concerned with assuring some income, are also assuming the risk they want to. But the unhedged or any part thereof, is their gamble and does have significant risk, as the unhedged are finding out again. Months ago I said was really concerned not only about 2015, but 2016 too, and knowing if I were a farmer I would be hedging as far out as I could especially if the price is profitable. I might not get what I want, but I will get what I need. When a shortfall is apparent that would change the supply, I can change my hedge to reflect it. I know it is not easy to hedge at these prices, but I say it is much harder not to.

Nobody knows what the market will do this week let alone by harvest, but knowing how surplus markets act, I have strong feelings that we will be lower than here at harvest. How low depends on how large the crop comes in. I see no reason at harvest to be higher than where we are now. At these price levels we have a long way to go before we see a bottom. Corn charts look terrible, soybeans look like there are still bulls fighting the fight, but the direction is still down.

Monday I do not expect too much to happen, but Tuesday anything can happen. The report can send prices one way, and by the end of the day it can finish the other way. Do not take anything for granted. I just trade the numbers, the report does not have anything to do with how I trade, I do not trade the report, I trade the charts and the numbers I get from them.

This report can be volatile, and unless it is near the average trade estimates, we can move significantly. Corn spreads that are $.02 ½ or less from full value will lose greatly if we rally $.30, and larger spreads like a $.80 put spread will lose greatly. Yes, we want every penny we can get from these hedges, and unless the market is above... Subscribe now!

Obviously nobody thought prices could get below $4 this year, because nobody thought we would get ideal conditions this far either. Give me 80% of the first $.50 down from the original $5.60 hedge and then it was every bear for himself. If I got half of what the market went down from $5.10 until here because my protection ran out, I would be more than happy if I was a bull and got paid for being wrong, or I am going to get the rest with the crop insurance I have. Any scenario including just getting $.40 of a $.50 hedge and did nothing else, I would at least have something to say I am glad I did right.    

Have you looked at your past thoughts lately as you had written down in your journal or notes to keep yourself real? You must ask yourself what you will do if 1 year from today if we trade $2.90 or $5.90. You must have a plan all the way up, or all the way down. Live in the now, but you MUST plan for the future, I have always lived my life this way, and of course reflected in my trading approach, same as I look at what I made not what I left on the table, half full or half empty, and will always be half full to me. Just like being unhedged, whatever I left on the table or what I would not sell/hedge had risk attached to it, and when I ended my trade I ended my risk and so what was left on the table was not just the profit, but the risk I would have taken to have gotten it.

I see why having a hedge protection cheaply and leaving $.50 upside unscathed is not good enough, or $.80 up in soybeans like we do, it is because the unhedged are no different than the 99 out of 100 traders, who do not exit losing trades because they are more worried that the market will turn around and they would make "all this money" instead of worrying about losing more money in a losing trade. $1 down and then $2, and they worry about it going higher? Let me try to say it this way, if you produce $500,000, $5,000,000, or more than $50,000,000 worth of grains when at prices seen in May, how much did you lose? Now take that money lost and tell your wife you lost it in Las Vegas, or that the amount you just lost was lost on the Superbowl, what would she say, or what would you say "it is part of the business" and was lost due to the price of grains going down, really? She does not know you could have hedged, she does not know that a part of farming is betting it all on the Superbowl, or the stock market, or the grain market? I rest my case your honor.

These are my opinions and you or those services can think differently, I feel strongly about the things I say, and if you wonder how you botched marketing this year, look at all the people and services around you and ask yourself if they did any better. If you have a service that you are happy with the last 2 years as the market has come down, continue using that service. If not, you should think about and consider being self directed. Use any service that helps you in the pursuit of being self directed, so you can reflect the risks you want to take, and the rewards you are happy to live with. When services act like without them you are powerless, you should know you are in trouble already. Knowledge will empower you, not the knowledge of how to form the best guess about the fundamentals, but how to get hedge protection cheaply and allow for some upside too. Maybe you do not think the market can get high enough like the service is looking for, why should you follow their bullish thoughts. Take their opinion into consideration, but always do what is right for you. Some want more of a gamble, and some want little gamble at all, so how can they both listen to the service that is "one size fits all"? I am posting this article and the last 2 paragraphs are more for unhedged producers to think about.

Options premiums (prices paid for the strike) should come down after the report is out, and would take a move of twice the ATR to keep the premium in there, so if we have a normal range we will see premiums really decline. Time and crop problems are reduced every day, and every day we are closer to harvest.

I still say "I want to sell rallies today at resistance much more than buying support numbers today, but would trade without bias and risk $.03 in corn and $.05 in soybeans using a stop to protect any idea". That will be my idea for report day too. I have the same chart parameters going into and after the report as before. 

                    
8/8/14:

Grains: November soybeans have closed only 4 times above the bracket line at $10.88 ¼ in the last 4 weeks. Any rally up to there should be sold or hedged before the report on Tuesday. I want to have known risk option bear strategies or be well hedged going into the report, I do not want to have futures on before the report, have no problem day trading futures once the report is out. I could care less what the report says, I am only concerned with how the market reacts to it. Report or no report I trade the charts. Knowing there is a report has always been a "red flag" for futures contracts, but I have no problem using known risk strategies and the odds already in my favor. I will say that soybeans do not look bad, and they are up $.19 ½ for the week. On the other hand they do not look good above $10.88 ¼, and I remind you the parameters I gave you with $11.18 ¾ resistance, $10.55 (now $10.54 contract low) support, and the pivot of those two numbers is $10.87. I said we would trade sideways until the report inside those parameters, and we rotated twice up and down for $.62 or more. If you could take $.25 of each $.60 move up and down, you would make $1 instead of $.62 selling the high and buying the low or looking for more. I want to hedge or improve hedges wherever possible going into the report, and that includes reducing any 2014 call above $12.20, they will no longer do you any good unless we can rally $.60, but will not help you until we get "up there".

Read comments for Monday until now, last Friday we closed in "the hole" with no way of knowing how we would open Sunday night, but not only did I have a plan for the upside on Monday, I had a plan for the week no matter if the market went up or down or both ways more than once. I wanted to "buy" or reduce my upside, and both corn and soybeans still have nice gains for the week.

It is a silly game to bet, with everything unknown, assumed, and can change on any given morning when the weather could change dramatically. We could have much more or less than guesses today, but nobody knows what the reality will be about true production numbers. What is worse, we might have already priced in what is guessed, or the price at harvest based upon expectations, or we could be way off in what the price will be. In October when we can get a better handle with what is out there, only the "old lady" will tell you after the fact what you should do TODAY. So go look into the mirror and ask her to tell you what you should do now. Whatever she said you should do today, DO IT! Always do what is right for you, and make sure that you do not risk too much on any idea such as hedge or improve one.

Days are getting shorter, nights are longer, and temperatures are ideal for a big crop. Rainfall could not have been better for more than half the crop, and only certain areas are crying rain. US grain production has never been in a greenhouse, but this year is one of those years that it looks like it is. Wherever the shortfall, other areas will more than make up for it. Cliché’s get to be cliché’s because there is a lot of truth in the statement. "Big crops get bigger" was around long before I was born, because there is some truth to it. No matter what the crop size is, the next factor the market will need to discover is price, the price that is in balance with supply and demand. Knowing the crop size is one thing, knowing what "fair value" is for that crop is another.  

Some of the downfalls of services and analysts have many things in common, the main thing is that none of them could trade their way out of a paper bag if their life depended on it. They can talk the talk, but not only can they not walk; they have not learned to crawl yet. The first things you have learned from me are, know and control your risks at all times, and never risk more than you are willing to make. I am a simple man and it made sense to me to know what I am doing before I started to trade. It does not take a genius to know that if you lose all your money, you will not be able to continue to trade (or farm). I did not learn from the people who were successful, I learned from the losers, and what did they all have in common, they lost too much money. Making money was not the problem, losing money was. So as a person who is learning what does not work, I am learning what does work or should I say what I need to avoid.

These analysts, brokers, hedge services, let alone producers, should know what I knew before I bought a seat, risk control, and they are nowhere near competent to have a valid mindset to approach trading or hedging. I have taught you to think what you want, but have lines in the sand on EVERYTHING you do, THEY broke my kindergarten rule and now have placed many a farm and trading account in jeopardy. Do not forget "do not sell it below $5.50 and just sell it in 2014"! Do not forget those looking to sell or hedge $1 higher and have lost $2 trying to do so. They are not traders, THINK what you want, but be prepared for reality. Never again will you be anyone’s victim, except if you ignore what you have learned and become your own victim. From what I have seen the last 6 years, I would take advice from most of my producers, but do not want to even listen to anyone who has not been completely hedged 2014 above $5.10. 

Year after year you see I need no reason to sell or capture what I can on rallies, or buy or capture what I can on breaks. I can stay in a trend for almost 2 years and counting, and I could take swing trades against the trend or reduce or improve my position/hedge at the same time when opportunities present it. This is what I reinforce when the market is quiet, things that improve your mindset so you can accept the things that will help you, but does not seem comfortable since it is against your herd mentality that you were running with in the past. You never read or at least I have not seen too much of, anything from anyone that can truly teach you something new that can actually help you in your pursuit of successful hedging or trading, so they mostly talk about fundamentals that can easily be disputed with just another "guess".

These are my opinion, and reasons for you to become self directed, and needing no other information than what you can find in a chart, and the knowledge you have learned to implement and use as a hedging strategy no matter bull or bear market. From what I have seen "out there" the last few years, you would need to try very hard in order to do worse than the "guru’s" have. Just like you learned from your parents growing up, learn how to be self reliant, take responsibility for what you do, and improve in time from the wisdom you get from your experiences. I have 38 years as a member, 3 years prior experience on the trading floor, and I can see how the 38 year olds in these companies might have more to learn, but you would think that the people who "run" these services would have the knowledge and oversight to at least be 100% hedged long ago. Corn can go to $2.90 and they go home and ask "what’s for dinner", and those who listened to them might be wondering if they have a home to go home to after harvest. Shameful! Hedge means to take risk off the table, ask yourself, how well are they doing, and can you do better yourself?

Nothing has changed in the market as far as the charts and I am concerned. I have always said I hate to buy a quiet market, but things do get quiet before a major report, and this one is major. The problem is, they are not factual and are based on best guesses, and then of course the "guru’s" get to second guess the USDA guesses. And you think that I want to bet on that?

You have today, Monday, and Tuesday morning to adjust your positions/hedges. Do what is right for you, reduce the upside exposure as cheaply as possible, and sit back and watch the "game" begin at 11am Tuesday.

I still say "I want to sell rallies today at resistance much more than buying support numbers today, but would trade without bias and risk $.03 in corn and $.05 in soybeans using a stop to protect any idea".
  

 


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