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Hedging Soybeans & Corn commentary for 5/6/15

Published on: 16:45PM May 07, 2015

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July 2015 Corn
                                                                                 
3.70                                 
3.66 ½                                  
------------3.62 ¾        Pivot 
3.59                                                                        
3.55 ¾                          2015 Low
                                            
 
5 day chart….      Down from last week same day          
Daily chart …      Down  
Weekly chart…       Down               
Monthly chart…Down  3.92 is the 200 DMA
ATR 6               Oversold 14%

For 5/6/15: (July Contract) Key downtrend line (red line) near $3.73 is resistance, daily numbers support. Green bracket line is support now.
   
In my daily July 2015 corn numbers on Wednesday; my resistance and was .00 1/2 from the actual high; my pivot acted as support and was the EXACT actual low.                                                                           
                                              
In 2010 $3.24 is now support and was the bear’s target, with the next objective of $2.90.                           

July 2015 Wheat 


4.79 ¼                    
4.72 ¾                     
-------------4.66 ¾          Pivot 
4.60 ¾                              Contract Low                                               
4.54

 

5 day chart….       Down from last week same day                                                                                    
Daily chart   …     Down  
Weekly chart …  Down   
Monthly chart …Down                   5.50 is the 200 DMA
ATR 12 ½                                                Oversold 10%
   

For 5/6/15: (July Contract) Contract low is support and daily numbers resist. 
  
In my daily July 2015 wheat numbers on Wednesday; my resistance was .03 from the actual high; my pivot acted as support and was .00 ¾ from the actual low.                                           
  

July 2015 Soybeans

10.04                           
9.97 ½                           
9.95                          
-----------9.84 ¾         Pivot    
9.74 ¼                         
9.62 ¾                         
                          
5 day chart...         Up from last week same day                                                                                        
Daily chart   ….     Sideways            
Weekly chart …   Down    
Monthly chart ….Down                  10.19 is the 200 DMA
ATR 15                                                     Balanced 53%  


   
For 5/6/15: (November Contract) I continue to say “$9.65 is resistance, daily numbers green bracket line supports.                        
 
In my daily July soybean numbers on Wednesday; my resistance was .04 1/2 from the actual high, my pivot acted as support and was .03 ¾ from the actual low.                                                                                                                               

Chart comments

5/6/15:

Grains: Since mid January November soybeans have traded between $9.34 and $9.78 ($9.56 is the pivot of those two numbers) except for 2 weeks in February where they tested the upside above the sideways range, and failed. Over the weekend I said I thought the market could be up for a couple of days, and that became fact, I could see that coming, but it is harder to see what Wednesday could bring. Since the market is at the “pivot” of the sideways range, and the downtrend line now comes in at $9.65, I am interested in only taking the sell signals today. That is the pattern I am stuck in, sell rallies first to get short, and more than willing to take profits at supports. I am a strong bear longer term, and as I have said in the past many times, I think the next level down will not occur until the crop has been planted and weather looks good, so I look for a breakdown in 2 weeks or thereafter. Crop report next week might favor the bears since the weather is so good. This month of May could be the Bulls last hurrah, but bears are keeping the “summer rally” on the radar. Maybe what I said will come true, that we already have seen the summer rally in the springtime. The clock ticks in favor of the bears.

Corn was about $.10 from the contract low which spurred profit taking, with the help of a firm soybean market. I want to sell this market and the first good resistance is near the downtrend line at $3.70. The new 2015 low should hold up the next 2 weeks, but no surprised if tested again. Call spreads are now cheaper than when at contract lows in October. I continue to recommend reducing call spreads, since most have 2016 in the 2015 options too. December 2015 $5.00/$6.00 call spread settled unchanged, but 2 producers bought it at $.02 7/8. Everyone who sold the $5.00/$6.00 call spread or was a part of a larger short call spread would be making at least $.11 clear or as high as $.22 depending on when it was sold, on that $1 call spread.

Remember, it never traded above $5 since it was sold; you locked in $.11 to $.22 on a $1 spread that never traded above $5. The unhedged had that upside potential by not selling the $1 call spread, and they still have $5.00/$6.00 open as you also have back now. The biggest difference is you have $.11 to $.22 for something that never traded and now you have that upside open again (if you bought the $5.00/$6.00 call spread back), and they have nothing. You helped pay for a put spread that must be in the money “down here” protecting you, and they still have nothing to protect. Buying the $5.00/$6.00 upside for $.03 is what we do, how much has it cost the unhedged to have that $1, or to be long from $4.00/$5.00, and how much has it cost since we went below $4? New subscribers should feel good knowing that this year is the first year for the rest of your life, and the knowledge gained will last a lifetime, no matter the fundamentals involved. You are nobody’s victim anymore, and you will get better in time just as you do on everything with practice, through real time experience, and the wisdom gained.   

No matter what you think, have a hedge on, and you can allow yourself reasonable upside potential to satisfy your desire for more income than your original or last morphed hedge. Protection is the main reason for a hedge, anything more in time is a “bonus”, especially since this hedge started over a year ago.

July wheat keeps making new contract lows, not exactly a signal of strength, and makes me want to sell rallies. A few of my wheat producers put protection has more than run out of protection, so they need to “take income” and get out of the old and start a new hedge, not for the upside, but for more protection that is needed. Some have protection they could morph into more, but their call spreads are worthless, so they could now sell a call spread just above their put spreads, or wait to see if it can rally, or a little of both. I would look to get out, maybe getting a put spread that is $.10 in the money, and sell another call spread just $.20 above my long put. I got the money on the way down, I really do not WANT to make it again on the way back up, the $.20 more is good enough (above the put to the call sold), but I NEED to make the put spread cheap. Wheat is oversold and a bounce would not surprise me, but I want to sell every resistance level. Wheat has excellent support at $4.20, a double bottom low in 2009 and 2010, and $4.10 held well in 2007, so the closer we get “down there”, the more I want to take profits, or get my upside back and morph into a new spread. It will be for two reasons, I would want to get long down there, and I would only have a small put spread. $4.20 I want to treat as $2.90 corn and $7.90 soybeans, where I want to play the market from the long side with a minimum hedge and good upside potential of around $.50 (How bullish do you think you can be when supplies are so burdensome? Always have an objective that could be attained.).  

I continue my bearish bias longer term. I want to trade without bias, and risk $.02 ½ in corn, $.03 ½ in wheat, and $.04 in soybeans using a stop to protect any idea”.             

5/5/15:

Grains: Corn and wheat slipped a little, but soybeans could not find more downside which does not surprise me, look at the highlighted comments for Monday. I said it could last a day or two, so I at least expect the market to start the open outcry session on a firm note like tonight’s action. Funds have made it clear that they want to stay short the grain markets, until at least some kind of threat comes on their radar. The chart says sell rallies as it has for years, and thinking the funds will defend their position makes it easier to sell rallies.

Everyone knows the same known fundamentals, so whatever weather, planted area guesses, strong dollar, underhedged producers who are probably getting wake up calls from the bank, and with expected yields soybeans will have at least a carryout of 300 million bushels. I have insisted since my service began, burdensome supplies will put a cap on any demand driven rally. A true bull market needs two things, strong demand AND tight supplies.

Many of my producers hold short May futures contracts in all 3 grain markets, and my concern is the May contracts will gain on the July contracts. The pattern for over a year has been, about a week before first notice day, the spot month gains on the next month. It just has not worked since I can remember, but it has been a long time. You could go back and check settlement prices in the past, and you can see by the day by day closes when and how much it gained. Too much time/work for me and just memory the spread tightens is enough for me. When the pattern changes, my thoughts will too. When the front month May goes off the board, I expect the spreads to widen again. Old crop is more difficult to predict but I think this year the old crop months will start to widen, but I am really thinking the November will gain on the July as time goes on, and that is the true bear spread.   

Since soybeans have shown volatility the last few days, option prices reflect that. Soybeans could catch people asleep one way or the other; otherwise premium would be coming out of the options like in corn and wheat.

Corn and wheat are dead dogs for now. Up to the funds when and at what price they want to take profits that will cause the market to correct higher to resistance levels. For now it is the supports that are vulnerable, and since corn made a new low for 2015 on Monday in spite the gains in soybeans, tells me how weak it is. 

I continue to say “I expect a firm opening tonight and tomorrow, and then we will see what the bears are made of pressing it “down here” in corn and wheat, and soybeans is a coin flip but I continue my bearish bias longer term. I want to trade without bias, and risk $.02 ½ in corn, $.03 ½ in wheat, and $.04 in soybeans using a stop to protect any idea”.             

5/4/15:

Grains: Across the board losses last week with corn and beans losing about $.06 and wheat down almost $.15. COT report showed funds increasing their wheat short another 10,000 contracts to a record short position of 107,000 contracts. Added 27,000 contracts in corn to a hefty 92,000, but lightened up 16,000 contracts reducing their soybean position down to short 32,000 contracts. I would have thought these prices would be seen next month if planting went well and crops look in good shape. This weakness speaks of what will come with a decent crop, and I have been saying this every year since September 2012, and became reality the last 2 crop years. I continue to think that way for 2015, and again in 2016. I always bet on a decent crop because that is “normal”. The odds favor normal. But when a whiff of smoke comes into your nose, the fire will be close at hand. This year, if weather trouble rears itself, the rally will be extreme and quick. The funds right now are holding a record or near record short position, the growing season has just begun, and we are at pretty good long term support levels. For those reasons I am skittish to play the short side at these levels except for maybe a day trade selling the resistance numbers.   

New subscribers should start to see my mindset, that all the guesstimates of planted acreage and potential yields is all they are, guesses, and I do not bet money on guesses. My mindset tells me that guesses become moving targets and moving goalposts, and is more or less random, and like a broken clock becomes correct 2 times a day for a second. The guesses are never a help to me, and I do not trade off fundamentals especially unknown fundamentals. But they do help me in a completely different way from those who “bet” on their fundamental analysis. Guesses produce market swings, and sometimes would not be seen if it were not for those who bet on fundamentals. Guesses sometimes produce extreme moves to a support or resistance level that I want to bet on, but not because of anything except the price is at a support or resistance. I bet on the chart, and care less what brings the market to a place I want to buy or sell. Their “guess” takes time to find out if it will actually become fact, where the fact that the market is at a price level I want to bet on is a fact that became true and I can take advantage of. “They” bet on a guess, I bet on a chart level holding or not. 

As a hedger you should only be concerned with the price, because no matter what you think, lower prices take money away from the unhedged, higher prices put money in the unhedged pocket. The trouble with higher prices for the unhedged is, unless they “capture” a price with some kind of hedge, it is probably “here today and gone tomorrow”. So know what you are doing and why, and like all my old producers know and my newer producers are learning, think what you want but always have a hedge on. They learned when the market goes down and the market is at a place where you want to get long, you can do so cheaply by reducing the call spread sold. And when the market rallies, you can buy that protection that was expensive cheaply, or you can capture more income by raising the put you are long to a higher strike, that is one way to capture what the market gave you. 

You have already reflected what you think when you look at your current hedge. You do not bet on the next market move going up or down, but rather capture something cheaply after it has already made the move. You learned where support and resistance is, and most of all you are learning the strategy I use when long futures looking for higher prices, but was protected nicely if the market went down instead, limiting my losses and making me the casino getting the odds by using the strategy that gives me all but let’s say $.10 if it goes up, and loses only $.10 if it goes down let’s say $.80. That is the typical soybean hedge, for corn it is usually $.50 or $.60. That edge is what builds billion dollar casinos, or a professional trader to be around after 40 years, doing the same things.

My speculators turned around on Friday looking for a bounce in soybeans, and hedgers did reduce corn and soybeans very cheaply all of last week. I look for a bounce for a day or two, and then we will see what it is made of. I do not want to press the short side down here, and I am not bullish by any means, but do expect to step back and take a breath higher.

Same bracket lines above resist corn and wheat, and their lows last week is support. Soybeans closed near last week’s low and will be pivotal, uptrend line acts as resistance, downtrend line acts as support. I do not look for more down this week, but rather sideways action. Funds have the final say, but if they sell it off to the next support I will be a buyer once again, and if they cover some shorts and drive it to a resistance I would be a seller. Thursday high in soybeans had not be seen or broken for 6 weeks, and on Friday we were about $.32 lower. New subscribers are learning what I say about “prices are fleeting”, so have a plan, and when the market gets to your objective, execute what you planned and do not second guess it. Change the plan if need be, but never when at an objective, take it. Then continue with your plan and change it when the chart sees fit to do so.

I still say “I expect a firm opening tonight and tomorrow, and then we will see what the bears are made of pressing it “down here” in corn and wheat, and soybeans is a coin flip but I continue my bearish bias longer term. I want to trade without bias, and risk $.02 ½ in corn, $.03 ½ in wheat, and $.04 in soybeans using a stop to protect any idea”.         

5/1/15:

Grains: November soybean chart is below:
I said in my trade ideas to “take the soybean sell signals only” and $9.99 would be strong resistance, and $9.74 would be strong support, the high was $9.97 ¼ and the low was $9.75. Extremely overbought condition, $.50 3 week rally, and the high of the last 6 weeks was all the reason to hedge, or capture income, and speculators to sell. Strong export sales might have been the reason they bought on the open, but after 12 minutes, it was all downhill from there. Market tested support which held the rest of the day, and produced a $.08 ½ bounce. May soybeans are still up $.08 ¾ this week. Charts look firm and unless it closes lower on the week, the upside correction will still be intact. No doubt sellers will show up again the closer it gets to $9.99, but the downside looks limited too. We might trade between $9.99 and $9.74 or $9.65 next week.

New subscribers looking for 2016 soybean hedges were too much money to execute, and so I would go back to doing 2015 hedges for 2016 crop. The November 2016 soybean ... Subscribe now!

I have taught you to remember, whatever you do is for expiration, and we can get bullish or bearish as time goes on, that you control, but we all have and keep the protection we need until cash marketed. Remember when you were never hedged? Market rallies and it’s “I’m going to sell it higher” only to see it implode instead, and then you say “why didn’t I sell at the good price in my hand? Unhedged are all or nothing, and those who do NOT lock in some kind of income, is “betting the farm”. That is not what a producer should be, a gambler, he should have a hedge on like yours, which allows you to make a “bet” like $.04, or the strikes you select, but you are doing it knowing you have the income the hedge assures you, and just betting a part of it. 

At this stage of the game, with the crop insurance at a much higher price, and with the money you made already from the hedge you have had for over a year, and morphed to the current hedge, my producers are now “cheering” for much lower prices. 

4 weeks ago you could have sold May corn near $4, think what you want but reality is the last trade price. Pin action (like in bowling) continues weak, but this week’s low has held and not far from where we are now. Not much risk if bottom pickers come in and place their stop below the low of the week of $3.59. I do not like to pick my bottom because they are smelly trades, but I have absolutely no problem taking profits on shorts, or to reduce my hedged call spread cheaply. Look at it like this, unhedged producers are losing a lot more than $.04 for the upside they had, and still have, but cost them $1 or more. If they were thinking about hedging when $4.50 or higher last year and did not, it just cost them $.70 for the upside you sold and can buy back. Hedging is always the way to go if forced holding a long or short position as a hedger, as a speculator I have it easy, cover my position and look for the next trade. Support is this week’s low, and my daily numbers resistance. Bulls need to close above the bracket line to have a chance for a firm start to next week, if closes below it, this week’s low should be tested to start next week. I thought it would be too soon to get to this price level, just shows you that my projection of $2.90 by the January 2016 Final Crop Report, could be realized with an average trend or higher yield.

Wheat failed at $4.80, which was the major support through the March contract, and now acts as strong resistance. New subscribers note, that when strong support such as a contract low is broken, it then acts as resistance. Broken resistance becomes support when the market is above it. The contract low of $4.60 supports.

I expect a firm opening tonight and tomorrow, and then we will see what the bears are made of pressing it “down here” in corn and wheat, and soybeans is a coin flip but I continue my bearish bias longer term. I want to trade without bias, and risk $.02 ½ in corn, $.03 ½ in wheat, and $.04 in soybeans using a stop to protect any idea”.         

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


The markets covered daily are 2015 & 2016 Soybeans and Corn.


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