Technical Read In Front Of Today's Yield Report

[rayfcom]

The corn market is at a very critical crossroads in front of this USDA report today, and without getting all tied up in details I'll make this short and sweet. 

If the market rises in price after the report, the first challenge will be the $3.70 level on the December futures contract, which probably gives way for to get prices to rise the report will have to be very bullish and there are a lot of players on the sidelines with cash to burn. The next upside level will be at $3.78 to $3.80, and if the report is really bullish there is a good chance we see the fulfillment of the inverted head and shoulders pattern that has been forming, which comes in at $3.96.

To the downside, the $3.52 to $3.55 area will be tested on a mildly bearish report. A moderately bearish report will test the uptrend line at $3.39, and a really bearish report will seek to fulfill the double top formation in the December contract at $3.29.

Regarding extremes, to the downside if the $3.29 area is broken, then I think the floodgates open and we move down to the low $3 to $3.12 area, and maybe into the $2 handles over time. A really bullish report gets us to the $3.96 area, above which I am not too confident about. I will say this, there is a small but real chance that if the trend line at $3.39 holds, there could be a monster rally thereafter that could actually wind up reversing the bear trend in place since 2012. But that's an outside chance, there is no evidence yet it will happen, just something to think about if the market tests that trendline and finds buyers.

That's how I see it going onto what should be a pretty pivotal day for the future direction of corn prices. 

[ihtractortherap]

Nothing new there. By the way Ray most on this board hedge. Where have you been? You're not telling us anything we don't know. Save yourself the long speeches

[six_s]

Come on IH, be fair.

In this post there was at least some discussion of potential objectives.

It wasn't just more of the same schtick of "you better hedge at the bottom 10% of the recent trading range or else you will be a failure"

[ihtractortherap]

My point was the market will go up or down, no one knows for sure, not even Ray.
Yes I agree he did post some valid targets and probabilities, however are you going to hedge ,sell whatever below cost of production in front of a USDA report that could go either way. Its just not so simple as some see it.

[Hobbyfarmer]

The "cure" for this is exactly as was posted by another poster here.

Only allow the crop to be traded. Not bu that don't exist.

This thing has spiralled clear out of sight/control.. Needs to be treated to a point like stocks in a company.

But also like options they have a sunset time limit. (Grains are a perishable product that is consumed/used up).

Each unit needs a serial # and a minimum four hr holding time.

The current system is NOT a system, it is corrupted beyond belief.

Let rayf and his ilk play in fantasy land , the real products need a new venue/home.

Throw in your thoughts and ideas too

What we have now is unbridled fraud.

[nutlug]

I think the one thing that would do the most to keep the futures market honest is being able to make delivery as a producer.

[nutlug]

That being said I think an actual low cost hedge to protect against the report risk for corn is to buy Dec $3.50 puts that are currently trading for $0.0375 If it is an extremely bearish report and corn goes sub $3.00 you will get 12x or 13x return on your premium. If not you have spent 1% of your expected revenue on price insurance. It allows you to protect bushels thru harvest and if a China deal gets done after the elections that gooses prices you reap the benefit.

[illinifarmer]

I completely agree with SW until something changes the real crossroads is survival of the system. Crooks through and through. Once someone gets away with it it spreads like s virus. Everyone starts to think it’s ok and ponders the option, why not me? Much harder to correct and reverse the trend then taking the leap of joining the corruption.

[illinifarmer]

I apologize it was in reference to hobby. Just reading a SW post prior to posting. Gl out there.

[rayfcom]

Okay, so we have the USDA report, and it was a bit weaker than expected on the yield and i  line on the carry out for 2018/2019.

The market has reacted positively, trading at $3.71 as I write as opposed to around $3.61 when the report came out.

Here's my quick take : We broke through the resistance at $3.69, which is bullish for prices. We also have an outside day (higher high and lower low than yesterday, which means the settlement price today is important. A settlement above yesterday's $3.6525 is a bullish sign.

The report was not a trend changer from the big picture, but it does give the market fuel to move higher. At a minimum, I think we will test the $3.78-$3.80 area within a day or two, the short term momentum indicators are oversold and pointing higher, and I think there may still be some short positions that will cover at least some of their shorts. 

Above $3.80 is going to be a stretch based on the information we have now. With a 180 per acre yield number, even though weaker than expected its still a very healthy product out in the field that will have to be placed. On top of that, about 80,000 contracts came out of Open Interest during the last two weeks, so there is not a big short position left of hot money to fuel a big short squeeze. The troubles in the stock market also weigh on demand, as there is always a fear that a stock market calamity would slow the economy.

The next few days are critical to the market's direction. Will Open Interest Increase now that we broke above a major resistance point ? Will the sunshine in the Mid West get harvest numbers up ? What damage have the corn crops suffered from the weather ? 

The way I see it, I would keep the hedges on that I placed in the $3.60s and look to add if we get to the $3.78-$3.80 next line of resistance. I would sell an equal amount at that level as I did in the $3.60s, and would want to have 40 % of my crop hedged at a price between $3.65 and $3.80. 

For now its a good time to catch up on some other work and let the market dictate the next move. 

On the cautionary side, if the market does not settle today above yesterday's high at $3.6525, I would start to become suspicious of the rally even more than I am now. If the market trades below today's low I would get even more suspicious. We'll tackle that if and when it happens.