None of us can know what direction the market will go or how far it will go with the WASDE report Thursday. News always trumps any sort of technical analysis tools. I do have a few ideas for how I would manage the risk in this situation.
I am not terribly worried about corn right now as it is already below most producers break evens. My position with corn since late August is that it would grind higher which it has, and I still feel that way. I believe the downside is limited for several reasons.
1. Normally a rising dollar would push grain prices lower. Despite a rising dollar and a massive carryout in corn stocks, corn prices have slowly crept higher. I believe this could be in part because soybean prices have moved significantly higher, and pushed the corn-soybean price ratio to wider than normal levels.
2. When the dollar moves lower, I think traders will reward corn with a nice pop.
Unlike corn, which is already below break even, soybean prices are somewhat above break even. This you have to protect. If you have followed my soybean sell recommendations, you would already be 20% sold at $10.215. There are numerous ways to protect your soybeans from lower prices, but this is what I am recommending.
1. Get to 50% sold the board, either via shorting futures with a brokerage account, or better yet, with a futures only contract at your elevator. Futures only, not cash. If we have a dramatic drop in soybeans, the opportunity exists to take advantage of some major basis appreciation.
2. Price the remaiing 50% of your soybeans via serial put options. These options expire on January 27, and will provide a pretty good floor to get us through Thursday's report. The cost of the $10.00 strike option is 11 to 11.5 cents per bushel. If prices move higher out of the report, you could immediately sell the puts to recover some of the cost.
Following these strategies will assure that you have locked in soybeans at profitable levels, and have left open the possibliity to get closer to break even on corn.
Synthetic Corn Sale
By the way, had you followed my synthetic corn recommendations, you would likely gain .35 per bushel from the wheat puts we sold, and another 25-30 cents from the oil short.
Speaking of the oil short, oil has begun its move lower. Oil did rally today however, and actually touched the level where I began the trade at $56.80. With any strength in oil tomorrow, I highly encourage taking this position. Every dollar oil moves is worth $1,000. I expect we will get at least a $5.00 per barrel move in the weeks ahead. One oil contract would be equivelent to 17,750 bushels of corn, so every dollar oil moves lower will in essence have a 5.6 cents per bushel effect on corn. Manage the risk with a $57.9 stop.