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Use Good Marketing Strategies to Trump Emotion
As prices gyrate throughout the course of the year, producers often look at what could have been and, with hindsight, wish they had taken action. As we look at the corn market, we want to point out that opportunities have begun to present themselves. This is especially true in deferred futures contracts.
In particular, the corn market is a carry market. This suggests it is paying you to store corn. July corn futures reached a high of $4.34-1/4 on July 11. Unfortunately, that value quickly disappeared in a matter of days, as prices dropped close to $4.00. The market, with carry, is trying to buy your corn for later, and not for harvest. By establishing sell targets above the market, you're in a position to be rewarded by rallies. Without the targets, you will need to watch for rallies, and then make decisions in the height of uncertainty and emotion.
When prices do rally, there's always good reason (and usually plenty of rationale) for them to continue to move upward. Having target points in place is a great way to let the market reward you. Intuitively, as the market nears your targets, your instinct may suggest you cancel your orders in fear of a continued rally, and having sold too soon. If you struggle with this, you are not alone. To alleviate this concern, before you make the sale, purchase a call option. This can provide the confidence in implementing your sell order, since you've already retained ownership.
Some could argue that, if you are long corn in the field and long with a corn call, you own too much. There is merit to this thought process. Yet, this can be an effective strategy. Owning the call may be the catalyst to keeping you disciplined to sell rallies, and follow your original plan. On the other hand, some like to wait until their order is triggered before buying a call. Often, though, call options are more expensive with increased volatility and higher futures prices. This could scare you from buying calls, though it should not, as long as you are following through with your sales and staying disciplined. Good strategy can trump emotion.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, 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.