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sw363535
Honored Advisor

Wht on the upward bounce of the dribble.

Ok so this limited risk went pretty well for the first 5 days..... I had a goal of adding another 30 cents on 10K bushels of wheat

(I'm calling it 2016 wheat because there is still hope for the 2017 crop price yet and  I am not sure where MY production will be. i consider forward contracting wheat more risky than "speculating the board" especially when the prices are already in 5 or even 10 year lows.)

 

And right now we are up from the purchase price of $4.385 (September KC)  +46.5 cents per bushel.   Up 5.5 cents from yesterdays close......

 

1.  why did I choose September..... rather than July 17

 

2  this is actually the 2nd time i have reowned this 10K and gained 33 cents the first time.  There were a couple of other dribbles but they were not  based on much information and turned out to be small moves....

We not been in a trend but we have been in a trade range of nearly 50 cents since September 16.

 

 

So by committee or Vote by those who live in a Republic and by spitwad for those student marchers.  Where do we sell it back??    And when??

 

And WHY?

 

 

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29 Replies
elcheapo
Veteran Advisor

Re: Wht on the upward bounce of the dribble.

I was wondering why sept.

 

I was told once tho, sept was maybe a bit better, because the july expires a bit early, and can be subject to "harvest", but since sept

is beyond harvest, was a bit more "stable"........don't know how true.

 

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clayton58
Veteran Advisor

Re: Wht on the upward bounce of the dribble.

I would ask myself if this is a good place to buy. If not then maybe time to sell. The move has exceeded your goal. I would at least put a sell stop under it. JMHO. Kudos for seeing an opportunity and following your plan
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elcheapo
Veteran Advisor

Re: Wht on the upward bounce of the dribble.

wheat tour.....I was rather surprised on the average they got for north central ks........I've seen better fields "from the road".......

but admittedly it is hard to make a good estimate at 60 mph.

I would tend to agree tho on the 39.....I don't like it, but ours is thin for some reason.....but maybe it's because all the weeds are

gone, had some Clearfield wheat out.....it does help to clean up the field, and it also helps clean out the back pocket too !!

 

it will be somewhat interesting to hear tomarrows report, they should see significant damage tomarrow.

 

so, now what do we do.....hedge in a prices, since "all the news will be factored into the markets".

 

had a couple of custom cutters go thru town this afternoon.  I think they were, or maybe someone moving combines

around........

 

anyhow.....had a extension market fellow, who now works for a big advisory service in Chicagoland, tell us, when we saw

combines going thru, we need to buy puts, because soon harvest would be underway....price would go down (seasonal)

but it's "supposed" to be bottomed out by the time we cut ((at least that's the way it used to be"

 

wished there was some sort of cheap way to guard against both perils....either going high or low.

 

with the projected yields, we need all the income we can get.

 

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sw363535
Honored Advisor

Re: Wht on the upward bounce of the dribble.

September,  I try to do that to give myself options and time......   If harvest comes and I am still holding those contracts with a 10 cent gain or loss I am not forced to sell into a harvest market.  I expect to get out of hedges or spec positions early or late but seldom at harvest and never under the pressure of a contract expiring.  It will usually cost me a couple of cents on the carry on the front side  but usually gain it back on the close out transaction.   So.... I agree with you cheapo on the monthly contract choice.

 

In my marketing plan.. I do not make hedge or spec positions without a very specific goal(a plan of expectations).   Then I have a much clearer quicker picture as to whether the plan was right or wrong(timing off, etc) and I am better at getting in or out.  I agree with Clayton..... It should have been sold this morning with a 16 cents bonus over the 30......... then you temper your price with the knowledge that it was only 10k bushels which is only about 1/6th of the 2016 crop. and keep your head in the game...     I did not sell it today because I got back to your advice a little late in the day.    and I been doing some thinking....  one should keep doing that instead of whatever your other temptation is.

My plan says "Never cheer your position"..... look for those things that change the market.

 

News and market movers ..... always think about what turns the market against you.... what is coming next to affect your position......  And cheapo hits it right on the head.  The Kansas wheat tour....right on schedule...

Primarily driven by our educators who have the same overriding issue as usda does..... They seldom take risky positions.....  So tonite many farmers from elcheapo to Kanarado and south to me and Clayton think they just lost a crop.  Probably covers 50% of the Kansas wheat crop......  I would say there is not a 5% chance that the wheat tour agrees with them.(and I don't agree with them).   So that is the next "news" for the trade.  probably a damper on the weather market and for that reason I will try to be out of the positions before the next news hits...

Clayton's right so I have a sell order in at a gain of 43 cents...     Motivation..... not to maximize gain  but to be out of the market.... before the tour.

 

SW comments.. I disagree with my friends locally who are looking at headed out wheat that was flattened to the ground by high winds... with 3.5 inches of rain and 10-14 inches of snow..  two things I see that make me doubt that all is lost. The storm took a more northerly turn ...low sat in kansas instead of the texas panhandle.  Southern wheat was headed out. northern was not....... temps stayed at 30 degrees for a long time while snowing but when it cleared the headed wheat got warming winds....temps didn't drop.............. But from garden city, Ulysses area north 20+ inches of snow and colder..  It had cooler temps with a blanket of insulation.   Im guessing we still cut wheat but it will all be bent over and slow going... and probably lower yield.  On Friday in the snow storm I checked temps and Calgary and Alberta Canada were nearly 50 degrees.  There was no super cold are and lots of humidity to moderate temps.

 

What affects this market after the tour?  We know this crop is a small one.

 

 

 

I think this chart is interesting I see it as wheat has been in a sideways trade since September of 16.  But the new lows are increasingly low and the new highs are increasingly high with the most current swings being in the 90 cent range.  That is not the action of a surplus commodity....increasing volatility... 

One of the things I will be watching for is where this upward run finds resistance.... if it makes toe $5.00 and over levels before it corrects or if it doesn't  

 

 

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rayjenkins
Veteran Advisor

Re: Wht on the upward bounce of the dribble.

SW...thanks for the detailed explanation of your thought process on the trade....

 

couple of things about this rally are unique....first, we had the entire weekend to "stew and fret" over the situation, which added to the anxiety.....second, we've never had this level of ability to use social media and cameras to inform the trade of "on the ground" conditions....

 

as I understand, the snow is leaving rapidly......and whether the damage is bad or not so bad, the shock value of seeing all that snow covered wheat is wearing off......I saw a before and after pic of a wheat field on twitter last night and it was dramatic

 

net/net----there is going to have to be some really bad news to keep the bull case supported rest of the week

 

so, what to do.......

 

1)  get out....you made your money and a little bit more....and did it in a hurry, which sometimes clouds the judgment when it comes fast and easy..

 

2) if staying long, consider selling a call option "close to the money".....sept 4.60 was about 34 cents....

 

3) stay long.....if you feel you have "more info than the market" but expect that to become a known factor shortly

 

good luck whatever you do

 

Ray J

 

 

 

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JimMeade
Veteran Advisor

Re: Wht on the upward bounce of the dribble.

In Tony Dreibus piece there is a hint that things aren't as bad in the wheat belt as the first impression.  That is worth looking into and if one thinks it is true, one can, as Ray Jenkins pointed out, arbitrage the market and make some money.  Nice commentary, Ray.

 

Edit - looks like the market already has the "new" info in.  Arbitrage is a pretty fast phenomenon these days for the reasons Ray mentioned.

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sw363535
Honored Advisor

Re: Wht on the upward bounce of the dribble.

Hooray.........  

Thanks to the technology of our time we could hold a day long committee meeting with an afternoon snooze and get our position sold at $4.81 in the overnite trade.

And thanks to internet,, we brought in an expert adviser on market tea leaves.  Thanks for the guest appearance Ray.  🙂

 

Unique things........... most changes in trend direction are unique "news"  This one if it materialized, was in the forcast for three days before I acted ( and 2 days after)... and I chose this one with a September position so that I could live with the long term if It went against me in a market that has an extreme position.. bottom or top doesn't matter)....... Last time i rebought wheat this year I had to hold through a 15 cent downturn because I was too quick for the news that had a slow release fuse.  Also another reason why I am limiting actual dollar risk...

(example...... everyone knows how many acres you can comfortably take on this next year if a good offer comes along.... for some it is 80 acres and for some it is 600 acres... comfort level is the level you can risk and not affect your decision making processes )

 

Technology......... Ray hits the nail on the head. ........ and this is a point where Ag.com and I struggle...... Old world information systems are obsolete... ie talk from the floor or print and national news....... And it puts marketing "marketers" in a bad position..... a few years back we would want to know what is behind their thoughts as well as their opinion..... today we know before they speak and all we here is opinion.

Like the wheat tours noting our disease issues.... good to know but a natural function coming out of a drought where wheat went without harvest and was often not destroyed and used as a cover crop against wind erosion.  Maybe a comment in a lecture at KSU but not something we will hear on a news release....

Ray is right we need to always keep our mind moving on, even when we are still dealing with the flood home for the next month.... it quickly becomes, as Jim mentioned a day or 2 ago, ... a local issue.  Even if it covers half a state.

KNOW your commodity....... wheat has 9 lives....... is based on truth........  Corn standing in water is dead no matter how green the leaves   just examples.

 

Now for me ....... we still have a crop in trouble and 12 inches of rain has taken it's tole on our "ground" stored wheat carry.... and the chart still says to me wheat is looking for a reason to buy back some acres..... Within An expanding RANGE.   I will monitor wheat news like a hawk looking for a point to buy back a commodity that I think is undervalued to its COP.   Gotta say that just to salt a wound.

 

1)  Get out..... thanks ray...absolutely true and I would add to that clouding comment.......... gives you the idea you know what your doing.... because we don't ... too many variables involved.

 

2)  If staying long............Notice Ray sees this as an option, and I agree ....... never say never... there are times when you know it is a good long term position and may even see the fast gain as a signal to expand your position...assuming a little more risk or as Ray noted..... buy option insurance.... I think it is expensive but helps in expanding to larger hedging positions.

 The most recent example I have been involved with was cattle a couple yrs back.....the drought had pushed the market to a point bankers were nervous about lending for cows no mater where the fat market was....  It was pretty obviously toppy.  We have a small herd for this area, and I had every hoof sold for at months at least 18 months away and sat on them for quite a while.... never maximizing gain.  just insuring profit... ( that is a presonal attitude thing for me.... if i let maximizing profit be the motive my the decision making process gets sand in the gears.)   

 

3)  Stay long..... Ray that would make us professional analysts  :)........ I never assume I know something more that the market.... and that is probably your point and we deserved it.  

.  But there is occasionally "news" that changes the market for years to come...... Most recently --- the drought that brought me to this forum in 2011  which drove all grains and cattle for several years to come,,,, both up and down.  ---------- and what I think was the greatest example of all in wheat ...... the Russian wheat sale of 1973-4, which took wheat exports from a give away program to trade status had an affect that is still with us.

 

Additional thoughts

Just me...... but I do not trade for profit.  I farm for profit.....  My way of saying what Time says in a different way "the market doesn't care about cop"   I need to know COP in order to know when a commodity is in an extreme position.  If a commodity is cheaper to buy than it is to produce, something is going to change...(visa/versa if profits are extreme)......... and since we have gradually moved into a monopolistic economy, expenses are more inflexible putting more pressure on commodity markets .... creating volatility in markets that should be stagnant..... Wheat has good global supply and before technology and the government changed the way they intervene ( going from loan rates to adding additional costs nation wide through extreme regulation) the pressure is totally on pricing to move grain to the end user.  forgive the overstating....

 

I trade for the mental benefits....... not profit.(but I don't intend to loose)...... I look at it this way..... if my soybean hedges.... right now 20K bushel at 10.25 Jan18.....are at a good price and I don't see enough news to drive them to 15.00... I'm in for the long haul ...... the seasonal trend has an annual consistency to be a down slope into harvest.... but I am flexible if the Panama canal caves in.... or brazil falls in the ocean.

 

I have found that hiring marketing firms and options purchasing are very expensive options that come with too many OPO's.  Other peoples opinions...that are hard to ignore when they are paid for.  and few have a better than average track record.  Being active in an affordable risk controlled way has been pretty cheap for me...  to have the same benefits.   And for years I was too small a producer to mess with.....  So I started this project hanging out on thursday morning in a small brokers office for 3 months one winter....listening and asking --I had hogs in the early 80's and grain so we opened an account and lost a little $ hedging hogs, feed, and grains. and discussing reasoning.....

Then I went home and started a notebook trading conglomerate 🙂 ...... recorded trades and positions and notes on each one and what was was moving the market.... no money involved just me challanging me.....and my wife rating it as wasted time...since she was getting half the profits.  I recommend it...... and to this day i have imaginary positions in lots of things.. it just makes you read the news in a different light.

The last 15 years we have been big enough to have an account with a brokerage firm.  Which is probably a joke because I do not use it to near the extent I probably should.  We manage property for owners as well as land we own, operate a storage elevator, and supply grains to feedlots and ethanol in a great area to market (one of the reasons I don't use the brokerage account more)

 

Benefit of at least playing like your trading..........

I feel like I am much more understanding of markets and the real world value of what I produce.

I gain a comfort with pulling the trigger and not waiting until economics force the issue..... 

I got comfortable with knowing that it is ongoing and never ends....  You cant market your year long production in 2 hours on a saturday morning.

I stopped being married to ideas and traditions....... the only things in this world that don't change are Biblical.

 

And most of all I learned to think contrary to my position in the market..... that doesn't sound like much but it is.......Every farmer has a position in the market that sways his brain.  So I never cheerlead my position.  When the seed goes in the ground I am mentally listing the things that can go wrong and devising strategy.... like every other farmer....  Same applies to the markets...

 

So what is our next move in the wheat market?

 

 

 

 

smokeyjay
Advisor

Re: Wht on the upward bounce of the dribble.

All, believe me, the freeze and snow damage is real. The extent of damage is unknown. NAWG sources places the acres affected at 43 percent of Kansas planted acres. Tonight, I will be attending the Wichita meeting of the tour. Much of west central and southwest is heading and freeze tolerance is zero.

sw363535
Honored Advisor

Re: Wht on the upward bounce of the dribble.

Thanks Smokey,,, 

Fill us in on that meeting if possible...

 

If there is interest we will continue this thread...

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