December corn futures have recently dropped from over $5.00 per bushel to under $4.50. If you have purchased $5.00 puts, you are now in no man's land. What does that mean? No matter what action you take, you can kick yourself for taking the wrong turn. In other words, you can view it as a lose-lose situation. Now it's just a matter of minimizing which "lose" you want.
A basic understanding of marketing tools is critical for any farmer. Options should be at the top of the list. Often, options are misunderstood and not used properly. One element of an option is called delta. Delta is simply a fraction; it explains the change in option value when there is a change to the price of the underlying futures contract. As an example, if the futures moves 10 cents and option changes value by 5 cents, the delta is 5 divided by 10, or 50%.
With PED a major event affecting the hog market this year and, more importantly, a major influence on individual producers' decisions to expand or contract the herd, the outlook for hog futures has been very mixed. PED (porcine epidemic diarrhea) is a virus that has affected a percentage of the hog herd for 2014. It looks like the bulk of this disease has affected the herd in the January and February window. Theoretically, this would suggest supplies will be tightest in mid- to late summer.
Where possible, corn planters are pushing hard to plant crop in a timely fashion to catch up after a cool, wet spring. Does it matter? It might. For now, it is not time for worry or concern. Early-planted corn is not necessarily indicative of across-the-board high yield, nor is late-planted corn necessarily indicative of across-the-board lower yield.
It is not unusual for corn prices to peak sometime in the winter or early spring months. December corn futures bottomed in January at $4.35 and are currently near $5.00. More importantly, it represents an opportunity for many farmers to lock in a floor for the 2014 corn crop. This can be accomplished in many ways. One strategy we will explore today is called a fence.