A 2014 corn marketing strategy
As 2014 unfolds, corn prices could drop to under $3.50. If weather takes hold, a rally back toward $6.00 or $7.00 could occur. Carryout has declined the last four months from close to 2 billion bushels to near 1.5 billion, due to higher-than-expected feed usage, good exports, and an excellent crush pace for ethanol. This sets the stage for corn prices to rally. On the other hand, a good crop could send prices significantly lower from the current price of near $4.60 December.
The key for corn producers in 2014 is to remain balanced. December corn futures at $4.60 looks a lot better than potentially $3.50. Therefore, in the winter months, forward sell up to half of your crop. You will also want to purchase call and put options. By doing so, you can cover bushels sold to capture a price rally. You would buy puts to establish a floor to protect the value of bushels not sold.
Typically, prices are at their highest peak in the greatest window of uncertainty. That can be the winter months when the crop has total unknowns in front of it. As an example, we don't know what the weather is going to be like, we don't know how many acres are going to be planted, and we don't know what the world's production or demand will look like. A basic rule of thumb is to assume normal weather until proven otherwise.
A balanced approach is to forward contract 50% of your crop and purchase puts on the other 50%. This will establish a price floor on 100% of your expected crop while leaving 50% open for price rally potential. Purchase call options against forward sales. This now puts you in a situation that, if summer weather takes hold and is less than ideal for crops, you are positioned for price appreciation. In 2012, the market rallied from its low in June to its high in August, a move of over $3. The rally came fast and furious, and if you tried to play catch-up, it was probably difficult. Get call options bought ahead of any potential weather problems such as a late spring or drought. It's too challenging to out-guess the market. Assume normal weather until proven otherwise. Plan now for how you are going to handle a market that could move in either direction with big swings.
If you have questions or comments, or would like help implementing strategy for the year ahead, please contact Bryan Doherty 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.
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. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. 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 Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. 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. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.