Position Update August 30

Well as feared the Russians were coming, and wiped out my short grain position.  A pretty bad loss whose saving virtue was sticking to stop loss plan and indeed getting short the S&P at 1406 which I’m ahead on, and even going long — though a smaller number of contracts of soybeans at 1733 which is now up a solid 1%.

I added this morning to it at 1746 which knock wood appears to be the low of the morning and moved up a stop to 1736.xx.  This is an awfully tight stop but the soybean supply/demand situation is not as bearish as with wheat or even corn with murmurs of $25 soybeans.   They look really good right now, and the thesis is after all is to trade into breakouts and let it ride:

I have also added a small position in Live Cattle at 125.575.  Here is the six month chart.  Barron’s wrote about Live Cattle in late January and I’ve kept my eye on it since, with another brief small trade earlier, and appears to be poised for a robust technical formation (similar to Cotton right now at 77 which I may nibble in as well)

I feel comfortable even if just slightly ahead on soybeans & S&P but is this an internal trading signal that there is little consternation or just a false hope generated from relief after the surge in wheat and soybeans that knocked me for a loop?

On the stock side, large cap tech and ZNGA under 3 among others still looks insanely cheap but I am waiting for a downswing or the S&P at least to head back to 141x before putting on a position like that.

Grain Complex and Positions August 29 Evening

There have been volitile moves since Sunday night — Apple was a whole lot of anticipation for a four point loss (in 677 out 673) finding better opportunities to double down elsewhere and likewise got out of Gold breakeven.  Both of those I’ll return to at some point.

(small) Short position in ZN near the close at 133 ‘295 — I could immediately unwind this for reasons below but think there are a few points to be had after it spiked up then regressed today

I added to the anti grain position by shorting ZS; and traded it very poorly today, taking a loss and going long on a head fake surge up only to see that too reverse — I think I got obsessed with too very short term of movements, my classic error and again got short at 1714 – only to see it rise again but long term perspective within what really should be described as a range.  The evening movement taunts the highs, I set a stop loss at 1740 and will let it lie.  A stop there risks another tweak at the top of the range only to return lower but given the extreme weather conditions to move it higher risks too much of a loss; I could take a 1.5% total loss and willing to give 10 more points from the 1730 it is trading at in the evening :

I remain short ZW, profitably but moved down the stop loss in case the market turns want to lock in that profit: stop at 891 with the Dec contract at 879 now.

The grains are going to bounce around, there is Russian poli-agicultural risk but by in large this market looks headed down after several attempts to break out.  Here are the continuous month contracts of the three major grains:

If I get stopped out, unless the S&P breaks out over 1420, I will likely move straight into a short S&P trade which I think will be good after this week which is a typically seasonally strong one for stocks the effect of which may be magnified by any GOP poll bumps.

UPDATE 1:25 AM: evening moves up in both ZS & ZW are disturbing enough for me to monitor but I’m not freaked out; I fear evening thin volumes could touch my stops and I’m going to go ahead and move them up to 896.25 and 1746.25 respectively; these are losses far higher than I would like but I also want to avoid the worst case scenario of another whipsaw followed by the precipitous dive that I think is very possible and profitable.

“Hunger Games” in Forbes September 10 2012

In the Forbes print article “Hunger Games” by Steve Schaefer five stocks were recommended playing on the theme of drought:

Agrium (AGU) @ 100.37

CF Industries (CF) @ 216.09

Market Vectors Agribusiness ETF (MOO) $50.79

Tractor Supply (TSCO) @ 92.28

Tyson Foods (TSN) @ 15.26

Aside from a dire quote from perennial bear Jeremy Grantham about a “chronic global food crisis unlikely to fade for many decades” there isn’t much support for the described trend.  If it holds, the picks themselves may be good.  Tyson is probably questionable since feed costs will rise — one source of their current laggardry.  The fertilizer stocks go in and out of vogue and have had quite a run this year and this summer.  Chart for Agrium Inc. (AGU)

Chyanne Fickes of the Stone Agribusiness Fund is quoted these stock remain “extremely cheap” which strikes me as suspect: Agrium is up 10x since 2003 and had not moved much from 1995-2003.   This fund the article notes has $10 million under management — which one might have prefaced by saying puny.   Their results at least as expressed in (Canadian) dollars per share is not remarkable (were there large dividend distributions?):

Chart forSTONE AGRIBUSINESS FUND (HAY-UN.TO)

Guess one could have just bought Agrium.

AltaCorp Capital analyst John Chu says farmers are planting more corn than say soybeans which requires seven times more fertilizer which is a compelling point that can be matched against actual acreage planted.  In this earlier estimate on Seeking Alpha, Corn was indeed at “a 75 year high” but only a 4% acreage gain over last year in the US versus a 1% drop in Soybeans to 73.9m acres.  Does that move the needle?  The grain complex moves together; all else being equal one might suggest more Soybeans next year if there are lower fertilizer crops.

Deere (DE – 73.81) and Caterpillar (CAT – 86.01) were notable absences from the list of recommendations which if anything earns points for freshness.  In crops that’s paramount but will put their quotes here for comparative measure.

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