TFM Perspective 10-2-20


Sell the Fact, Own the Potential

The corn and soybean markets experienced a pre-harvest price rally. This is providing producers some of the best pricing opportunities since early in the year. In fact, soybean prices rallied nearly $1.80, eclipsing the high from January. It is often said, for whatever reason, the market will give producers a second chance to sell. That is the case for soybeans this year. There were many reasons for the price rally, including weather concerns. However, the rationale for why prices rallied really doesn’t matter. The fact is that prices are more attractive now than they have been all spring and summer.


The bottom line is that you have an opportunity to generate cash flow at higher prices during harvest, something that rarely happens. Usually, prices are finding their low in the fall months. A logical person might ask what happens if prices go higher. Of course, you will wish you didn’t sell. The counter is what happens if prices go lower. You will feel great that you acted and made a sale. And you’ll probably wonder why you didn’t sell more. No matter how you slice it, you can beat yourself up. Perhaps one of the more interesting comments from producers over the last several years is a consistent theme of not selling enough when prices offer opportunity. That is really a reflection of prices rallying, then falling apart too quickly to execute a lot of sales.


We all know that the last several years have tended to be bearish in nature for prices. What if your outlook changes? How do you sell rallies and stay in the market? Or, if you don’t want to sell cash, how do you protect against lower prices? The answer is a balanced approach. A balanced approach is selling cash and retaining ownership through the purchase of fixed risk call options. If you would rather hold onto cash, then buy a put option. With a put option, you have established price floor, and your cash grain remains unpriced. A balanced approach allows you to participate in the market whether it goes up or down.


South American weather will be critical over the next several months. World supplies will either grow or tighten. China is back in the market, helping to create robust demand. Will it last? Will politics be a big factor? These are a few questions that, when answered, could send prices up or down in a dramatic fashion. Now is a time to sell the fact (higher prices) and re-own with a fixed risk. You’ll will have generated cash flow and keep the ability to participate in a price rally.


Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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