By Gavin M.
It's close to 15 days now since the August USDA report came out. The crop tour is now behind us and we have been analyzing all those reports like crazy. What do they all have in common? We will have record yield. Trading grains is simple even when a lot of people out there will try to convince you otherwise. You just have to look at weather, supply and demand factors and then market sentiment.
I was one of the few - at least as far as I know, on my twitter feed who took the side of selling beans into the USDA report. People were skeptical and I even had some haters telling me I will probably lose it all soon enough. But this is what makes traders money - conviction. If you did your research and if the trading environment is conducive, take the trade. Every trade is a risk but you can't make money without risking anything either. The art of trading is managing risk.
So let's take a quantitative view here. If you're a retail futures trader having anywhere between $5,000 and $25,000 in your trading account, you could've easily taken this trade. If you're a cheap trader, Sell one Nov14 contract at 1070 for example. The USDA projected $10.35/bu price so they've effectively done your homework for you and gave you a covering price target of 1035. That's where I got out and will just evaluate from there.
If you shorted at 1070 and covered at 1035, that's a 35pt profit which yields $1750 per contract. This is just if you held until today's price of 1027. You could've easily put a trailing stop to get the maximum amount. $1750 may not look big to pro traders but for retail trades, that's $1750 you didn't have before. That can pay for your car, mortgage or take care of the next three month's groceries.
Trading varies from one person to another. Pick a strategy that suits you. Do your research, prepare a plan of attack and stick to it. Manage your risk very well and you should get a decent return on your trade.
I like trading grains in the spring/summer months when the rest of the market can be quite dead. Summer trading volumes dry up in Equities and Forex, so the grains complex really provide a great alternative to summertime trading.
by Gavin M.
So you wanna be a hog trader? Do you have a good life insurance? Livestock trading is NOT for the faint-hearted! The livestock complex is where boys become men and vice versa. It's a ruthless futures trading place where if you are not extremely sure about what you're doing, you will lose money quickly.
Let's talk about Hogs. It's been on a downtrend for more than a month now with no signs of letting up. People today got extremely excited about the short covering. Nobody knows if this really would be the bottom in hogs but let's take a closer look.
Sentiment - it is still bearish. Even with PEDv in the background, the carcass weights remain big enough to cover demand. With the expectation of having more supply coming in the fall, this can only reduce the hog prices.
Price action - you got to admit that hog prices went up so fast and markets have a great way of equalizing this. We came off on the heels of $80-$90 hog prices. So it should not be a shock that the 'bulls' try to level off here around $90 on the V futures.
Seasonality - there's a saying that livestock prices typically bottom into September. Will that be the case again?
Technicals - the charts below clearly show that the technical setup still belongs to the bears. The machines trading this chart do not care much about what's really happening on the ground. Machines can't think rationally. They scan for data online and compare it to what is good or bad and react accordingly.
I am still a seller of rallies until I get hit enough to really say I'm wrong. Until then, jury's out on whether the hog trade has finally reversed.
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by Gavin M.
It has been awhile since any of us has written anything on this site. I don't think the markets really have changed since late February. I'm going to do a full disclosure here. I have been a trader for nearly 13 years now. I trade futures, forex and stocks/options. Since this post is about grains, I've been trading grains since 2006 and you'll normally only here me talk about them in the spring/summer months. If I actually sucked at trading grains, I would've stopped at Year 2 of trading them.
We had the USDA Crop Production report today. It was a mixed bag for everyone. The corn people got what they wanted, the soybeans people probably got disappointed judging from the price action and then the wheat people were just 'blah' about it. I went short soybeans approximately Monday morning.
There are no traders on the fence when it comes to grains here. The main reason I shorted beans is because it has gone too far too fast with no basis behind it. Week after week after week, we receive reports from either the surveys or the USDA progress data that we continue to have record high yield. Unless someone out there is just making numbers up, that is compelling enough to make one think, "Hang on, why would I be buying soybeans here north of $11/bu?"
This is what makes the market work - two teams - the optimists and the pessimists. The optimists will never want to accept the other group's trading thesis and vice versa. So I was not shocked that corn got a bump up rather than a sell off despite the report of record high yield. Why? You only have to look at the price of corn ahead of the report. It was way beaten down - the analysts have a great reasoning for this - "It was already priced in." So why would any decent trader out there short corn when its price chart was already way down?
Let's turn our attention to soybeans. It shot up way too fast: probably due to short covering or whatever reason there is that the traders bought it up. Soybeans was always the wildcard because despite the record yield, traders have assumed demand continued. What cannot be ignored is the hard data week after week that record yields will be here. Of course we'll know for sure by September when harvest season is upon us. Fundamentals can take sometime to trickle into the markets and that is fine.
So, the reasoning was simple enough - find the grain product that went up too high and would be the most vulnerable for any move. It was soybeans. Even at the time of this post, soybeans have rallied a good 18 cents or so from the USDA lows. It will be known in the coming days/weeks if the fundamentals will hit this one hard or if the market players will remain in denial until real, hard data will come slapping them in the face like the hand of a woman scorned.
USDA prices Soybeans at $10.35 / bushel. At least that can be a reference bottom if we ever reach it. I would remain short any rallies set by soybeans.
Traders from Equity Sense will be writing on this blog on positions and other market-related things.