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Simple as 1, 2, 3

Agriculture.com Staff 03/21/2008 @ 10:03am

I have had farmers show me complicated options strategies that involve buying puts, selling calls, then selling more puts as a way to protect the current high corn and soybean prices. These complex strategies may generate a lot of commissions and be difficult to understand for most farmers.

I am going to suggest a simple three-step strategy that will allow you to benefit from these higher markets. This plan will reduce stress, keep some money flowing into your checking account, and will likely get you bottom-line results that make you happy.

I have studied and traded the markets for over 30 years. The analysis methods that I use fall into the categories of studying:

  1. Price
  2. Time
  3. Motion

The simple marketing plan that I suggest you use for selling corn and soybeans will use 1 and 2, and 1 + 2 = 3. I promise that is as complicated as it will get.

I'm going to assume that you have 10,000 bushels of cash corn and soybeans to sell.

  • Price
    I am going to call offers into my elevator to sell my corn and soybeans in 10% increments if prices continue to rally. I will place the offers starting at $5.48 on July corn futures and at $13.38 for July soybean futures.
    • Time
      The time and seasonal studies that I work with project higher prices into the April-June time period. At this high price level and with the huge amount of volatility in the markets, I would rather be three weeks early than one week late.

      The time plan for 10,000 bushels of corn and soybeans would work in the following manner, selling 1,000 bushels a week starting April 4.

      • Use price and time
        If the news stays bullish or a weather scare develops, the scale-up sales targets I have outlined have an excellent chance of working.

        However if the global economic slowdown drops commodity demand, or if the hedge funds decide to reduce their huge grain portfolios, then some of the high upside targets may not get hit. That is why I encourage you to use the price plan along with the time plan: 1 + 2 = 3.

        If the first five price targets are hit and you get to 50% sold, and the markets chop lower, then make the 10% incremental sales each week until the crop is all sold by the week of June 6.

      By using this simple 1-2-3 step plan, you will likely have one or two sales near the high of the move and one or two sales you're not thrilled with. But the odds are good you will come out with an excellent average.

      I have had farmers show me complicated options strategies that involve buying puts, selling calls, then selling more puts as a way to protect the current high corn and soybean prices. These complex strategies may generate a lot of commissions and be difficult to understand for most farmers.

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