Corn Strategy: Keeping it Simple
What’s Happened…
Since finding a bottom shortly after the August 12 WASDE report (World Agriculture Supply and Demand Estimates), corn futures have recovered, gaining nearly 10% in value and currently trading in the upper $4.20s on December futures as of September 24. As harvest gets further underway, it is likely that prices could come under harvest pressure, as farmer selling is likely to increase for bushels that are not able to be stored at home. The USDA’s most recent forecast estimates a record crop at 16.814 billion bushes. Beyond the over-run, what about the rest of the crop? Pricing opportunities have been limited this past year due to low prices. Many are finding themselves with little or no crop priced, something that is different this year. Because of this, it is time to implement strategy and get the marketing ball rolling. For many, the process of getting started marketing just before or after harvest can be a challenge. Every day is a new chance for opportunity or chance to see income decline.
Why this is Important…
Sometimes, less is more. What does this mean? In the case of marketing, this can mean finding a strategy to execute that accomplishes the goal of selling and staying an owner. This strategy considers all the variables that might affect a decision, such as storage cost, basis risk, market risk, and something we’ll call “stress risk.” Stress risk is the risk of doing nothing, which leads to more stress. The next step is deciding a path to eliminate risks while accomplishing other needs or goals, such as when to deliver and determining how much cash flow is needed. Currently, there is a carry in the market (cost of storage, insurance, and interest), where deferred months are priced higher than the front month(s).
A simple strategy is to forward sell a comfortable amount (use hedge-to-arrive or short futures if not wanting to lock a basis). This manages downside price risk and captures carry. At the same time the sale is completed, you could buy a call option or bull call spread to retain ownership to the March, May, or July time frame. Executing the sale and buying calls (or a bull call spread) is an easy process to accomplish the goal of selling and staying an owner. Selling cash today with hopes of buying a price dip may not work in your favor. Luck might have it that prices take off as soon as you sell.
What can you do about it?
Run the math, talk to your buyers, and execute. Acting is key. Thinking about it or waiting until “next week” just prolongs the decision process. Once you have a strategy written out, ask someone to review it. When the review is completed and kinks are worked out, follow through. Shifting risk, generating cash flow, and looking forward to the next opportunity will also likely put you in a better frame of mind.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally-charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty