If we have seen a bottom in 10-year benchmark yields, and are in the midst of a new secular bull-tre...
The Grains Will Grow Again
04/15/2011 4:38 pm EST
Look for soft commodities like corn and soybeans to present opportunities this spring, says trader John Person, while also describing a few ways traders can play them.
A lot of traders focus on seasonality, things that happen over and over again during specific times of year during certain events. Our guest today is John Person, he’s an expert in seasonality trading. John, so what are we looking at here for the spring 2011?
Well typically, there’s a few sectors I think we can focus on. Everyone hears about the rise in commodity prices, inflation is on everyone’s minds.
The grain complex—soybeans and corn—typically, we see continued strength in that sector through April, and then as we get an indication of how the planting season will go, and of course, the crop and harvest time in South America—the southern hemisphere—those are the two issues at play.
If we get any supply disruptions out of the southern hemisphere crop, or if we get any planting delays, this may put a stronger bid, believe it or not, in both soybeans and corn.
There’s a derivative, or what we use soybeans for, is we take the soybean, they crush it, they get soybean oil and soybean meal. Soybean meal is used as a feed additive for animals, and if you’ve not noticed the prices of beef, feeder cattle, fed cattle, as well as live cattle, prices are through the roof right now.
Those higher prices may translate into lower profit margins for a lot of restaurants, so you want to be careful and watch the beef. I believe beef prices will continue to see stronger gains through spring and early summer.
Pay attention to a market that is not really focused in the media and focused in the general public’s trading repertoire, and that would soybean meal.
If there is any type of spring planting delays, soybean meal is going to be…there’s going to be a strong demand, and that might be a nice trade to be looking at.
Alright, if I have an idea about this but I’m not exactly sure of the timing, is there a longer-term trade and some security I can take that would help me take advantage of this, but not rely so much on being right about the time?
There’s an ETF, the DBA (PowerShares DB Agriculture Fund (DBA)), and they changed the makeup of that so it’s not as correlated to the grain, especially soybeans and corn.
Unfortunately, no, there are some analysts out there who have mistakenly said “Oh, try the ETF MOO,” (Market Vectors Agribusiness ETF (MOO)), but that’s more stock commodity like deer, it’s not as correlated to grain prices such as corn and soybeans.
What I would recommend is A) Visit the commodity sector as far as trading accounts are concerned, and one can look at not only options on the commodities, but one can also participate by looking at the electronic mini-size contracts.
I think because of the higher prices that we see, most people aren’t familiar or they don’t feel comfortable going down to smaller size or cutting their leverage, and I think one should investigate because it will allow you to participate.
If this is a continued strong bull market, one can be able to pick up some pretty nice gains, and I think on any pullback between, say, late-February, early-March, if we see a pullback in corn to the 670 region, I’d be a strong buyer of, say, July corn futures.If we get soybeans anywhere close to $13 again, I think that would be a tremendous buying opportunity for investors.
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