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Agriculture.com Staff 05/21/2010 @ 2:05pm

With most world crop commodities on the slide in the last few weeks (or for that matter the last few months) there does not appear to be much urgency for anyone to protect upside price movement. However, this is the time of the year to consider it. Prices have been on the slide. We recommend taking advantage of opportunity when prices are more likely in their lower half or one-third of the market.

We highly recommend call options as safety valves. If or when weather becomes a factor, the market could move substantially in a short period of time, thereby making it almost impossible to chase prices upward.

World supplies are virtually unchanged for the last four years in corn. Stocks to usage remain snug. The argument can be made that, unless domestic crop yieldsare high, a dramatic turnaround in prices could occur. The most likely reason for a price turnaround would be weather related. Although consistency in growingcrops in the last decade has inched upward, you have to have cooperation from Mother Nature.

It has been our experience that throughout history, just when it looks like we have figured out how to grow good crops without concerns, Mother Nature comes back to suggest otherwise. Therefore, an investment in out-of-the-money call options as safety valves against feed purchases or against forward contracts makes sense when the prices are in the doldrums.

Consider purchasing September out-of-the-money calls. As of this writing, $4 September corn calls are trading near 15 cents. That could be a cheap investmentif weather becomes a factor. The drawback to September options is the expirationdate of August 27. If looking for more time and coverage, then look to move out to December. Consider buying $4 or higher strike prices. This again may be a wise investment.

The key is to be prepared. The current perception is that corn and soybean prices cannot rally unless there is a weather concern. That may or may not be true. Only time will tell. However, with prices down this spring, execute strategy that puts you well ahead of the game. Buy your call options now!

If you have questions or comments, contact Top Farmer at 1-800-Top-Farm, Ext. 129.

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.

With most world crop commodities on the slide in the last few weeks (or for that matter the last few months) there does not appear to be much urgency for anyone to protect upside price movement. However, this is the time of the year to consider it. Prices have been on the slide. We recommend taking advantage of opportunity when prices are more likely in their lower half or one-third of the market.

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