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By Staff | Nov 13, 2009

A speculator is one who takes chances, wagering on how the future will unfold. Speculators assume risks on the estimate of the future in exchange for the potential for a financial profit or a loss. Speculators are seeking some great vision into the future that is accurate at least half of the time. This is an important ability, but if the wager is too small, the speculator will never hit the big time. Conversely, if the bet is too large, and you are wrong, you will be wiped out. Thus the art of wagering is as important as knowing the future.

Despite popular literature, professional speculators never plunge. They never risk it all on one big trade, never!

Plunging is like playing Russian roulette, do it often enough and a bullet will eventually turn up in the chamber.

Successful speculation is not as much about making money, as it is about money management. There is only one way to do this and that is to always trade with a stop loss order. This is the only defense that will protect you from losing your money.

Defense is what wins Super Bowls, the World Series, and the NBA Finals. Which World Series team had the better pitching and defense, the Philadelphia Phillies or the New York Yankees? The Phillies clearly were better and they lost the series this year. No defense and plan on going home early. For another example, look at the Super Bowl winners of the past couple of years. In 2001 it was the Ravens, in 2002, 2004 and 2005 it was the Patriots, in 2003 it was the Tampa Bay Buccaneers, in 2006 and 2009 it was the Pittsburg Steelers, in 2007 it was the Indianapolis Colts and in 2008, it was the New York Giants.

What did they all have in common was outstanding defenses. This year, the NFL is halfway through its season. If we believe the teams with the best chances to win the Super Bowl this year are the ones with the best defense, look for Broncos, Giants, Jets, Packers, Redskins, Steelers, Patriots or Colts to win the NFL’s biggest prize.

Over the last nine years, the Super Bowl winner has emerged from the list of teams that I have indicated in each of the last nine years. Sorry Vikings and Saints fans.

The art of speculation is about protecting your assets while assuming the risk of losing them. Most traders are content with taking risks and unconcerned about capital preservation.

I am always more concerned about the preservation of my capital than I am about adding more.

The only way to play defense in the commodity markets is to use stops. Many traders don’t want to use stops because of the fallacy that the market will try to pick off their stops. Or they are afraid of getting stopped out only to watch the market turn and move with out being in the trade. If you are trading with the major trend, place your stop at a point that the trend would change to avoid getting randomly stopped out.

It is better to be out of a trade and wishing you were in, than to be in a trade and wishing you were out of it. While it may be more exciting to enter trades, the only way your account balance will grow is with proper money management techniques.

Use stop loss orders and trade to make money. You won’t hit the highs in every market and you can’t mark the lows, but you can make money if you follow your trading plan. Don’t worry about getting out too soon with a profit, you can always re-enter and there will always be another trade.

Ultimately your goal should be to make a profit, not pick the tops and bottoms.

Corn analysis

Corn closed the week $.01 higher. Improved weather forecasts and a resumption of harvest pressured the corn market last week. Producers are actively harvesting soybeans and slowly harvesting the corn as producers are trying to allow the corn crop to dry naturally.

The USDA estimated the U.S. corn harvest is now 25 percent complete versus 20 percent last week, 53 percent last year and 71 percent average. With so little corn harvested, the trade has to believe that if farmers can harvest this crop, significant harvest pressure will eventually hit the market. Technically, corn has hit a 62 percent retracement level on harvest delays, which mandates producers increase their marketing efforts. The weekly export sales report showed net sales of 564,000 metric tons were up 54 percent from the previous week and 29 percent from the prior four-week average.

Soybean analysis

Soybeans closed the week $.30 lower. Improved weather forecasts and a resumption of harvest pressured the soybean market last week. Soybean producers are aggressively trying to harvest soybeans before additional weather delays, slow the soybean harvest even further.

The USDA reported U.S. soybean harvest is now 51 percent complete versus 44 percent last week, 85 percent last year and 87 percent average. The largest soybean states, Iowa 54 percent and Illinois

35 percent, show the majority of the harvest pressure lies ahead of the market, if the crop can be harvested. The weekly export sales report showed net sales of 522,100 MT were down 24 percent from the previous week and 25 percent from the prior four-week average. Increases were reported for China (290,800 MT, including 116,000 MT switched from unknown destinations, 46,700 MT switched from the United Kingdom, and decreases of 71,100 MT). This year’s export profile remains well ahead of last year’s record pace, 862 mb vs. 556 mb.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.

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