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Sell Early, Sell Often, and Cover With Calls, Says Market Analyst
Corn prices plunged 17¢ after the release of the March 29 USDA Stocks and Acreage report. Both figures were well above expectations. Yet, within weeks of the plunge, deferred contracts were trading at their highest price for the year. Specifically, July 2020 corn traded up to $4.20½ after reaching a low of $4.07½ on April 1. The December 2020 corn contract reached a high of $4.17¼ and closed at $4.16¾ on April 9, the highest close for the calendar year. While you can argue that the corn market hasn’t provided many opportunities to market corn above $4 (futures prices) in recent years, it has provided some opportunities. Sell early and sell often is an approach that could pay dividends. By doing this, you are essentially seeking opportunities 12 to 18 months prior to harvest.
Selling early and selling often means you sell small increments of expected production (perhaps 5% and 10%). Your goal is to build a price that represents value in the first 25% to 35% of your expected production. We will suggest you consider breakeven or better as value. This approach can often pay big dividends, as some of the best prices are established when a new contract becomes available.
The key is not to overcommit sales too far in advance. Things could change in your personal life, or you could have an issue producing enough bushels. Suddenly, 30% of expected production could turn out to be 50% of actual production, much larger than you expected. Nonetheless, early sales could help improve your average weighted price (sum of all tools and strategies). Learn how to use tools that complement your early sales or allow you flexibility. As an example, you could purchase short-dated call options for 30 or 60 days during a critical window of weather to cover sales that may have occurred months earlier. In 2012, the most bullish market in years had already seen its peak by August 10. Perhaps the best approach is: sell early, sell often, and cover with calls.
If you have questions or comments, contact Top Farmer at 1-800-334-9779, 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.
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