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Hot crop-weather or not?

07/14/2011 @ 3:33pm

This is one of those weekends that argues for the purchase of options.  By Sunday night or Monday morning, the weather forecast could continue hot and dry, or it could indicate a more moderate scenario.  

Grain prices made significant upward moves this week as it appears the hot, dry weather will be more than a two-three day affair.  New crop corn prices are up 40 cents and soybean prices are up 38 cents.  Weather will dictate the direction of next week’s move.  

Options purchased before a critical weekend like this can be called “courage options” because they can provide the courage to stick with marketing plans in the face of adverse weather.  They can also provide the comfort to be able to sleep at night.    

Farmers who wish to hedge crop would consider buying put options to protect themselves from a price drop or to lock in these higher prices.    

Buying call options would be profitable if prices rose sharply.  This can be viewed as a speculative play or as a way to add a little more money to sales made previously.  

In any case, the options can be held until Monday morning or longer, if weather risks continue.    

Export sales this morning seem a small item compared to the weather forecast, but exports were generally good in the past week.  Of course, some of the big numbers were known, as daily sales announcements were made regarding sales to China of both corn and soybeans.  Sales have been larger since the price break following the June 30th acreage and stocks reports.    

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The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.  

 

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