The DeCarley Perspective Trading Newsletter

Da Grains...

This newsletter was emailed to DeCarley Trading clients on September 19th

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:

·         Funds liquidating corn holdings, but fundamentals supportive

·         Beans could eventually benefit from bullish corn stats


Corn Futures

The much anticipated September 12 USDA report didn't deliver the massive supply shortage that many were looking for.  Nonetheless, the USDA's estimates for the 2011/2012 ending stocks was revised lower to 672 million bushels from 714.  This is a dramatic draw from last year's 920 million and although prices near $7.00 reflect might not reflect the fact that the tighter supply trend is intact.  Assuming the USDA's figures, the stocks to use ratio is expected to be about 7% for 2011 and 5% for 2012.  This means the grain on hand at year-end is only expected to meet 5 to 7% of annual demand...this doesn't leave much room for error, natural disaster or growing complications. 

The next big piece of news will be on October 12th, and a lot can happen between now and then.  We've noticed a tendency for grains to move higher into the reports; although it wasn't the case last month, the market is in the opposite stance.  Rather than being technically overbought, we are moderately oversold. 

Last month we issued a DeCarley Perspective that voiced doubts in regards to the corn rally to hold in the face of a potentially stronger dollar.  We now know weakness in the greenback was simply too much to avoid moderate fund liquidation.  As a result, corn prices have fallen over $1.00 per bushel.  This time around, we have the opposite suspicion.  Despite fund liquidation over the last few weeks across the grain complex, large speculators are still rather aggressively long and small speculators are largely net short.  We have to side with the "smart" money on this one...the fickle shorts could be quick to take a profit and likely have the upside lined with buy stops. 

Support in December corn lies near $6.75 but a touch under $6.60 is possible.  Should these levels hold, the first upside target will be about $7.35ish but if the Dollar rally fizzles and the corn rally grows legs, we can't rule out an eventual move back to the $7.90 area. 

Corn Futures and Option Trading Newsletter

Soy Bean Futures

 Liquidation across commodities such as crude oil and a sharply higher dollar has created an environment in which soybean prices are sluggish.  Adding salt to the wounds was a September 12 announcement by the USDA that predicts ending stocks in the U.S. for the 2011/2012 crop year to be 165 million bushels up from 155.  Similar to corn ,this is well beneath last year's figure of 225 million bushels.  Also similar to corn, this leaves the stocks to use ratio somewhere between 5 to 7% over the next few years. 

The seasonal low for soybeans (and corn for that matter) typically occurs in early to mid October.  However, the spring rally came a bit early and we think the fall rally could as well.  Accordingly, we feel as though the best trade will be from the long side in the coming weeks/months.  Helping us come to this conclusion is a possible pause (or full blown pullback) in the U.S. Dollar, the looming USDA report which many are estimating will be bullish and the fact that the bears have simply grown too comfortable. 

This week will be full of volatility in the financial markets due to the FOMC, and that complicates action in the grains.  Nonetheless, we doubt the January soybean futures will be able to break support near $13.38.  If we are right, a "normal" market retracement should see $14.09...$15.00 isn't out of the question if the October 12th report is friendly. 

We will be on the prowl for option selling opportunities in each of these markets in the coming day or two; but to be frank there doesn't seem to be enough to justify the risk.  Another way to play it is to simply go long a mini futures, or a full sized for those that are comfortable with the margin and risk (you might even do so with the intention of selling calls against the full-sized future should the market rally).   Another alternative is to buy lottery ticket calls, we like anything in November beans with a strike near 1430 in soybeans and 760 in corn.






Soybean Futures Trading and Charting

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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