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 Texas Rangers? The Phillies clearly were better and they won 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, in 2008, it was the New York Giants and last year it was the New Orleans Saints.

What did they all have in common?

They all had 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 the San Diego Chargers, New York Giants, Chicago Bears, New Orleans Saints, Pittsburgh Steelers, Miami Dolphins, New York Jets, Baltimore Ravens or Philadelphia Eagles to win this year’s biggest prize.

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.

Wheat

For the week, Chicago wheat closed $.03 3/4 higher; Kansas City wheat $.11 1/4 higher and Minneapolis wheat $.08 1/4 higher. Last week, Egypt purchased 120,000 mts of U.S. SWW wheat. Iraq also tendered for 100,000 mts of wheat.

Good to excellent ratings for the winter wheat crop are only 47 percent g/e, up 1 percent from last week, with 16 percent p/vp.

This is the worst rated winter wheat crop in the last 20 years. Last year’s crop was rated 64 percent g/e. Kansas is only rated 36 percent g/e with Oklahoma only 42 percent.

The weekly export sales report showed net sales of 745,200 MT for the 2010/11 marketing year were down 21 percent from the previous week, but up 1 percent from the prior 4-week average. Increases were primarily for Egypt (181,200 MT, including 55,000 MT switched from unknown destinations), Mexico (107,700 MT), South Korea (94,000 MT), Jamaica (66,600 MT), Nigeria (50,400 MT), and Italy (47,800 MT). This year’s exports stand at 828 mb vs. the USDA forecast of 1.250 bb.

Strategy & outlook

Producers should be sold/hedged on 100 percent of 2010 crop with hedge to arrive contracts as basis levels will likely to improve during the winter.

Producers should have started making sales/hedges for the 2011/12 marketing year.

Corn

Corn closed the week $.17 1/2 higher.

Last week, private exporters did not report any private sales. Basis levels should now improve as farmers will be tight fisted with their remaining inventory until after the January crop report.

The weekly export sales report showed net sales of 823,000 MT were up 54 percent from the previous week and 55 percent from the prior 4-week average. Increases were reported for South Korea (379,500 MT), Japan (159,700 MT, including 90,200 MT switched from unknown destinations), Egypt (114,000 MT), Syria (60,000 MT), the Dominican Republic (44,500 MT), and Taiwan (26,800 MT). This year’s export profile is now at 870.6 mb vs. the USDA forecast of 1.950 bb.

The 50 percent retracement on the weekly continuation charts occurs at $5.26, a likely destination for December corn. Corn has hit my projected target and has held this level, making this a good time to re-own cash sales for a winter rally.

Strategy & outlook

Producers have sold/hedged a portion of the 2010 crop and re-owned cash sales with call options.

Don’t become too aggressive marketing the 2011 crop until more is known about the 2011 marketing year.

Soybeans

Soybeans closed the week $.37 higher from last week. Last week, private exporters reported sales of 780,000 mts of soybeans to China.

The October Census crush was reported at 157.2 million bushels, solidly below market expectations of 158.6 million and below even the lowest of the estimates which ranged from 157.5-160.0 million. While crush was up seasonally sharply from last month’s 130.4 million, it was below last year’s October crush of 163.1 million and was the 2nd lowest of the last six years for the month of October. Through the first two months of the 2010/11 marketing year, soybean crush is up 4 percent from last year.

The weekly export sales report showed net sales of 673,900 MT were down 33 percent from the previous week and 50 percent from the prior 4-week average. The primary destinations were China (454,600 MT, including 175,000 MT switched from unknown destinations and decreases of 4,800 MT), the Netherlands (75,900 MT, including 70,000 MT switched from unknown destinations), Taiwan (72,500 MT), Spain (70,800 MT, switched from unknown destinations), Japan (68,300 MT, including 27,000 MT switched from unknown destinations), and the United Kingdom (40,000 MT).

This year’s export pace stands at 1.155 bb vs. the USDA forecast of 1.570 bb.

Strategy & outlook

Producers have sold/hedged a portion of the 2010 crop and re-owned cash sales with call options.

Don’t become too aggressive with marketing the 2011 crop until more is known about the 2011 marketing year.

Live cattle

Live cattle ended the week $.77 higher while feeder cattle ended $1.35 higher on a rebound in the cash markets.

Cash cattle trade rebounded as the showlists were smaller this week and packers were forced to bid the cash market higher. There is expected to be an increase in heavier cattle over the next couple of weeks, which could limit the upside for cash trade as packers will not need to raise cash bids.

Cash trade was $101 to $102 in the South, $3 to $4 higher compared to the previous week and $159 in the North, $2 higher compared to the previous week.

Feeder cattle in Oklahoma City was $2 to $3 higher.

Strategy & outlook

Producers should have price protection through a combination of options and hedges through the fourth quarter of 2010. The downside is likely limited to the tight supplies, so use price breaks as a way to cover hedges.

Make hedges on a rally near $108 in the February contract.

Feed costs should be covered in corn futures/options or cash product through the 2011 growing season.

Lean hogs

Lean hogs closed the week $1.22 higher.

Futures ended the week higher as futures rebounded off of technical support. The average Iowa-Minnesota hog weight for last week was estimated at 275.4 lbs, record high for this time of year, versus 275.9 lbs previous week and 271.3 lbs last year.

These weights must come down before values will find a bottom and sustain a rally. I would be careful of pressing the downside as seasonals have turned higher, downside technical targets have been reached and commercials have been strong buyers.

Strategy & outlook

Producers should now be hedged or covered the downside with put options if producers want to leave the upside open.

Producers should be 100 percent covered through the fourth quarters of 2010 with either futures or options or a combination of both.

Producers should respect the commercial position, the seasonals and look to buy back short hedges on price weakness. I don’t feel this is a good time to be hedged, so carry risk in the cash market.