'Big opportunities' brewing in the grain trade
With the grain futures markets trading at nearly 2-year highs -- $11.00-plus soybeans and $5.00-plus corn -- it's the right time for farmers to take some profits, analysts say.
A lot of fundamentals are lining up on the upside for corn and beans: The corn's been yielding fewer bushels per acre than expected, and now, harvest has been delayed by heavy rains over the last few days in the Corn Belt. Add to that continued strong demand -- that some analysts say will continue to strengthen in the near future, especially in the export market -- and there's a lot of room for upside.
But, don't sit on your hands completely while you wait for the market to top, because when that moment comes, it will come quickly, says Market Analyst Don Roose of U.S. Commodities in West Des Moines, Iowa. End-users won't keep buying at current price levels forever, and when they back away, the market will respond immediately.
"When we get to a certain level, we go to work and slow down demand. Then, you pick up demand again," he says. "That's happened in wheat and that will happen in corn, maybe sooner than you'd expect."
But, $5 corn is $5 corn, says Roose, and there are ways you can cash in on the rally underway without losing out on future upward moves. One simple way is to buy a Put. Right now, Roose says a $5.00 floor contract, or Put, for March 2011 corn costs 28 cents per bushel. A Put like this will leave your upside open and set your breakeven at $4.72.
"That is a level that is significantly above what people thought at the beginning of the growing season," he says. "Now all you have is the upside. It's more of an insurance policy."