Home / Markets / Markets Analysis / Looking for opportunities

Looking for opportunities

Agriculture.com Staff 03/19/2010 @ 2:12pm

In recent weeks, we have talked to farmers who have said there is little opportunity with corn and soybeans trading in a sideways pattern. So they turn their attention elsewhere, failing to pay much attention to the markets. This could be a mistake. There are two reasons why farmers should monitor the markets at all times. First, just because the market is not moving does not imply that the market does not offer opportunity, at least in some capacity. Second, farmers often wait for a price move before wanting to take action. By the time they recognize the move, it is often too late.

Let's explore both of these in detail. In a sideways market, there are still opportunities. Option writing is a opportunity to add premium to the bottom line. Although the volatility componant in a quiet market suggests less premium than in a volatile market, you will still have sold premium that over time will likely erode in your favor. More importantly, if you are holding grain in inventory or have unpriced crop for the year ahead, by selling call options above the market, the only way these options gain value is if the market rallies, thereby increasing your networth on unpriced inventory. While it takes management as well as cash flow to margin sold options, producers should know how to sell these against inventory. Currently, $0.50 out of the money corn calls and $1.00 out of the money soybean calls offer potential.

As for the market making a significant move, one never knows when this will occur. By being prepared, in less volatile markets, you have already positioned yourself before the market makes its move. Far too often we hear farmers say that they were waiting for the market to move to make a decision, such as buying options. Once the move comes, they then chase the market, often buying options with a higher premium cost. Bottom line, it takes vigilance and patience to work with the markets. Take time weekly or even daily to spend a few minutes examining the markets and planning. Know your strategy before the market makes a move, not after. Keep looking for ways to take advantage of market opportunities, even when they do not appear obvious.

If you have questions or comments, contact Bryan Doherty at Top Farmer, 1-800-TOP-FARM extension 129.

In recent weeks, we have talked to farmers who have said there is little opportunity with corn and soybeans trading in a sideways pattern. So they turn their attention elsewhere, failing to pay much attention to the markets. This could be a mistake. There are two reasons why farmers should monitor the markets at all times. First, just because the market is not moving does not imply that the market does not offer opportunity, at least in some capacity. Second, farmers often wait for a price move before wanting to take action. By the time they recognize the move, it is often too late.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
New 6631 Sunflower Vertical Tillage System