This report was sent to subscribers on 11/18/11 9:20 p.m. Chicago time to be used for trading on 11/21/11.
After the close recap on 11/21/11: My pivot acted as resistance and was 6.09 1/2, .01 3/4 from the actual high, and my support was 5.96 1/4, .03 from the actual low.
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-----------6.09 ½ Pivot
5 day chart.... Down from last week same day
Daily chart ...... Down
Weekly chart .......Sideways
Monthly chart .... Sideways 6.56 is the 200 DMA
ATR 17 ¼ Oversold 13%
Downtrend line is strong resistance crisscrossing the uptrend line which also acts as resistance now. The low of October supports at $5.72 ¼.
In my daily corn numbers on Friday; my pivot acted as resistance and was .02 ¾ (.00 ½ in open outcry) from the actual high; my support was .01 ¾ from the actual low.
Grains: Spot on numbers. Most notable fact I take away from Friday's trade is that soybeans put in a "double bottom" before closing higher on the day. New low for the run and closed higher bodes well for another up day to follow on Monday. I have used $11.52 for quite awhile, and although fundamentals change, the number does not. I look for some kind of correction in soybeans to start the week, no matter if we go lower down the road.
As I said the other day, last year in November corn had traded $4.75, and there is reason if SA comes in good and our weather looks favorable to plant, we could be trading at that level again by April. With a ratio of 2.1 in price, 1 corn versus 1 soybean, $4.75 corn would value soybeans at $10. (2.1 X the price of corn = soybean price) It all comes down to weather and yield when you look at the bigger picture, no other factor can add or take away hundreds of millions of bushels like the weather can. Day trading or short term trading of any kind has no concern with where prices might be in 3, 6, or 11 months away, but my producers must be concerned. This is their income we are talking about, and without proper protection from prices going actually below the cost of production, they could be worse off than the unemployed, they could be paying to work.
Nobody can accurately predict where prices will be in 11 weeks let alone 11 months, only can offer guesses. What I can do is look at the fundamentals and allow for parameters backed by past chart action. It takes time to equate fundamentals into "value" areas, but what I know I can do is teach you to have confidence in chart lines and formations that have higher odds of "holding" values, rather than being random without them. Most important is teaching you to adopt a strategy that fits YOUR needs. The strategy I am using for my hedgers allows them to have a bullish or bearish bias, but in a position that has a maximum margin, and potential to make unlimited profit. Participating in a low key manner awaiting an opportunity the market gives you to better your position (income), is indeed how a true business is run, not trying to take a speculative position and mask it by calling it a "hedge position". The only risk is not having enough protection if the market goes down; on the other hand you do not feel like you missed something no matter how high the market can go because the strategy allows making more money while protecting what you already made.
The question becomes, at this price level based on your average trend yield, is it profitable enough to lock in a very good income for 2012? If it is, I would want to start to hedge. Considering we waited until year end in 2010 before hedging December 2011 at $5.50 and all were glad to do so, we are just under $5.60 now. Everyone eventually locked in $7, and many have $7.40 minus costs.
December 2012 corn is approaching the low in October of $5.49, and there is good resistance at the gap of $6.20 ¼ so $5.85 is the middle (pivot) and I would hedge there if we get the chance. Before the report trading above $5.90 has been normal since May, but after that last report on the 9th, 2013 stocks will be burdensome and the fundamental outlook has changed if acreage and trend yields are realized. Last November, December 2012 corn traded just below $4.50 and rallied to $5.59 (where we are now) before correcting down to $5 (low of 2011) in February posting a double bottom having the same low in January. The market never looked back in this historic all time high year that was capped at $6.73 ½ on 8/31/11. $4.50 to $6.73 with $5.61 in the middle, using the 2011 low of $5 the middle or pivot would be $5.86.
December 2011 corn has strong resistance at the crisscross of up and downtrend lines at $6.40, support will be $5.99 ¾ and then the lows of September at $5.72 ¼, low of March near $5.45, and the low of the year is $5.36. The PRC was buying when at $5.75 in June and late September, they might not be as aggressive this time unless their intention is to build reserves.
If January soybeans can rally to the downtrend line I want to take the sell signal, and risk .07 on the day trade, but I would also take a longer term trade using a $12.25 buy stop risking almost $.30 but looking for a reward of a retest of the $11.52 support. November 2012 crop is at $11.81, actually higher than the November 2011, and November 2012 is harder to hedge than the 2012 corn. It all comes down to income, and if it really good then locking some of it in is the prudent thing to do. If the market goes down then you will not need a rally in order to lock in what price you can get today, and if the market goes up you will be able to make more money than the original hedge anyway. Lock in income even if it goes down; make more income if it goes up.
Producers also must live within their means, and it requires a credit line in order to have money to hedge both the old and the new crop. They are in much better shape than last year with record incomes, but it still requires money to cover both crop years, so it might cost more because you might want to leave some more room to the upside, and only a minimum put spread that will require more if we plunge. Selling cash or futures and buying a call or call spread is not the cheapest way to go, and cannot compare to my strategy. First thought should be on the corn in the bin, then 2012.
They settled January soybeans unchanged, so the new low for the run did not close higher. It would not surprise me to see the market rally to the downtrend line, or to test $11.52 again. Corn is just as likely to test the downtrend line as it does retesting $5.72 ¼. That is why I want to continue to trade the numbers without bias and risk $.06 in corn and $.07 in soybeans using a stop to protect.
Grains: Spot on soybean numbers, and spot on corn resistance but support was helpful at best. Damage has been done to the corn chart, in fact the biggest 1 day decline since the bearish September corn stocks report that added 164 MB. On last year's November 2010 report we were looking at ½ as much carryout for 2012 as next year's crop will carry into 2013. Two stats bother me, the 19 year drought cycle on one hand, and the fact that it is rare when we get a subpar yield 3 years in a row. The last time we went 4 years in a row was 35 years ago. One thing is for sure, next year we could be at $3 or $13. That makes the upside much more favorable as far as risk reward goes. The lower the better when you roll, which makes less downside to protect, and an easier springboard for a $.50 gain in the bin (or using a futures contract).
I want to sell rallies old crop or new crop unless weather turns unfavorable in SA. They are having a record crop as is the PRC, exports are lousy, but I would expect the PRC to be interested where they were last time at $5.75. Until the January Final report I would expect $5.75 to hold. Some of the pressure had to come from long term December positions with first notice day approaching. Market is realizing we are not the only game in town especially when producing record crops, and the cheap wheat is not helping corn feed. We are planning to plant 2 to 4 million more acres of corn, and the price is at historic highs.
Lastly, White house has changed the reporting system cancelling the Census Bureau's of monthly soybean crush updates, and now rely solely on the NOPA monthly crush updates. This is one of many examples of less transparency in a market that Dodd/Frank mandated more oversight and transparency in commodity futures. I am not sure I can believe any of it except for the final report, the last 2 years they have found significant amounts of corn late in the year. Yes higher quality corn can use less feed use, and the newer ethanol plants are more efficient using less corn, but this does not make up for what has been added. Commercial elevators are strict in their reporting requirements, but farmers can lie through their teeth until they sell and put it into commercial hands where it must be reported. Discrepancies and faith in the USDA reporting system has always been contested more or less, but I only look at what the market is looking at, and I only care how a market reacts to a report, not the report itself. As you have just learned last week, a bullish report produced a bearish reaction, and I am focused on price and time instead.
I keep focused on fundamentals for bias in what price level should support or resist, but I am always open for the "unimaginable" to happen. The USDA indicated that 80% of their objective corn plots were harvested BEFORE the October crop report, and only 33% of the soybean plots. In 4 of the last 5 years soybeans have revised the October to January final by a significant 75 MB or more, 2 years were revised higher, and 2 years were lowered. "Anything can and will happen" I always say, so I want to know what I want to do if the market provides a good opportunity, and where I will exit the idea (where the stop proves the number or chart level did not hold) or take a profit.
When everyone (especially the people who recommend trade ideas but make money generating commissions) gets bearish we will be close to a bottom, and then I will want to buy the closest support I can. Anyone who has watched commodities for several years are amazed when they watch analysts and people who recommend trades, seem to sell the low and buy the high. They always have a story why they should not have lost money. They seem to take big losses and make small profits. Are they all bearish yet? If they are and are selling, I expect a rally from these levels, and where they get stopped out, is where I want to take the sell signal looking for lower prices. They might be right and we will be much lower than now, but their problem as well as most traders is to manage risk and time (to be proven right or wrong before losing too much).
On the bullish report day, I talked many into not buying their out of the money calls back only because of the chart and the price action, not because of what the report said. Some bought a few but less than what they would have without some words from me the "unemotional one". I said they should do at least some because they called to do so, and there was nothing wrong with taking some profits and risk off the table, but overdoing it all at once is not the logical thing in my mind to do. I do not have an all or nothing mentality except when it comes to exiting a losing trade; I get out of all when I place a stop.
I want to trade the trade the numbers without bias and risk $.06 in corn and $.07 in soybeans using a stop to protect.
Grains: Spot on soybean numbers, accurate corn numbers. What changed, nothing, trading numbers now! Market is restricted to the sideways pattern as I outlined yesterday. December corn traded below $5.60 in March, and 1 year ago in November, this December 2011 corn contract traded $4.75.
Next year's crop must consider hedging 2012 corn with little at this time to rally above $6, so the risk is to the downside. 19 year drought cycle has never gone past 5 years without a notable dry spell in the 140 years of recorded history. 2012 is the 5th year past the 19 year mark. The dryness in the Corn Belt now is the opposite of last year's plentiful subsoil moisture. On the other hand, with the possible 2 million more in acreage to be planted this year, and a return to a normal trend yield of 160+ BPA, 2013 will have 1.35 BB in carryout stocks and that will be burdensome and will require $4.50 corn to spur sales. Producers are not sure if they want to plant soybeans or corn at this time, and might need to wait until planting intentions in March before they will have the answer. Since I believe we could be $1 to $2 higher or lower next year, using my strategy will protect some of the downside ....", and allow for the first $1 of the upside to start. Since my producers are contemplating what to do with 2011 corn now that the basis is so attractive, 2012 is on the backburner for now.
I did roll some corn from December to March, buying the March $6.60/$6 put spread and ...... Subscribe now!
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