The DeCarley Perspective Trading Newsletter

Grain traders battling macro economics, and upcoming WASDE

  This newsletter was emailed to DeCarley Trading brokerage clients on January 31st, 2012

The DeCarley Perspective Futures and Options Trading newsletter 

Thank you for choosing DeCarley Trading.  We are proud to offer the DeCarley Perspective as an informational guide to our clients and subscribers.  We hope that you walk away from the newsletter with a better understanding of market fundamentals, as well as technical and seasonal factors. 

**There is substantial risk of loss in trading futures and options.

**Past performance is not indicative of future results

On the radar:

  • Grain traders battling macro economics, and upcoming WASDE

Corn and Soybeans

The most recent USDA crop production report was bearish for both corn and soybeans; the news triggered sharp selling in both grains.  However, many traders we speak to are questioning the integrity of the USDA data and it is clear, in the big picture, grain supplies are still extremely tight.  This makes it difficult to justify being bearish in the intermediate to long term but in the short run, a rally is questionable.

The Fed has made it clear that it will continue to provide artificial support to the domestic, and therefore global, economy.  Despite significant improvements in employment and other economic data, the Fed has pledged to keep rates exceptionally low for the next couple of years.  Persistent simulative efforts, at the risk if inflation, suggests the Fed is harboring stiff concerns in regard to the European debt crisis and its potential impact on U.S. commerce.  In light of this policy, combined with the fact that we've seen considerable long liquidation by grain speculators in recent quarters, leaves us inclined to prefer the long side of corn and soybeans in the coming months. 

Also helping the case of grain bulls, are signs that Chinese officials could be easing up on the economic brakes. In 2011 China began throwing cold water on its economy in an attempt to tame inflation and the grain markets took the change in policy roughly.  Although we doubt China will implement expansionary policy a cease and desist of contractionairy tactics should be somewhat supportive.   

Although long-term fundamentals appear to be bullish, there are some short-term factors that could lead to lower grains prices in the near-term.  For the bulls, this could mean an opportunity to establish bullish positions at better prices.  For instance, the Euro currency appears to be running up against resistance and facing a seasonally neutral time of year.  Naturally, a lower Euro and higher U.S. Dollar would lead to potentially higher commodity prices.  Also, bearish sentiment in global equity markets and healthy rain in South America could keep immediate pressure on grain prices. 

Those following seasonsals realize the infamous "February break" often occurs early in the month and is typically an opportunity for the bulls to "get long" the market in mid-February in hopes of a spring rally. With all of this in mind, it seems the best trading opportunities might be provided to patient bulls.  Specifically, March soybeans could continue lower toward support levels near $11.60$11.50 prior to turning the corner.  Should outside forces (Euro and equities) grow overly bearish, or we get a bearish WASDE report by the USDA on February 9th, it is possible to see a retest of the $11.00 price; if seen this level would most likely be attractive for the bulls. Similarly, March corn futures face support near $6.15, $5.90 and then again near $5.72. 

Should these dips materialize, we'll be looking for a place to sell puts against the downward volatility.  However, those anxious to get involved might consider a cheap long strangle play ahead of the USDA report such as the April corn 710 call and the 580 put.  Don't forget, most traders start positioning two or three days prior to the announcement causing the options to become overpriced.  Therefore, if you want to trade a long strangle for the report you should look to take action by Monday at the latest. 

 Corn Futures Contract Chart

 

DeCarley Trading
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**There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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