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It’s Time to Take Advantage of Lower Corn Prices

Hog producers have a great opportunity as that market rallies.

Hog futures have recently rallied, particularly in the summer months.

What is most intriguing is that corn prices have stayed low and range-bound.

Hog futures have gained 10% to 15% in the last three months. In particular, June futures have rallied from under $75 per hundredweight to over $84. This $9 pick-up represents slightly more than a 12% increase. Yet, in that same window of time, corn prices have stagnated. Conventional wisdom says that low corn prices lead to increased livestock production.
 
Prior to September, hog prices for the June 2018 contract were range-bound between $75 and $79 from March through September.

Yet, a recovery was at hand with good demand, as exports continued to improve due to the weakening dollar and increased packer slaughter capacity. It can be argued that this is a demand-led rally. The problem with demand is that it can ebb and flow. At some point, prices will tip over due to increasing supply.

Bottom line – now is your time to take advantage of a rally and defend against lower prices.
 
To shift the risk of lower prices, consider forward contracting, selling futures, or purchasing a put. More advanced strategies to gain a balanced approach are forward contracting and purchasing a call in case prices continue higher. Or, selling futures and purchasing a call to cover the risk of short futures.
 
You can also consider a fence: buying a put and selling a call option. Your goal with a fence is to offset the cost of purchasing a put through the premium collected from the short call. Keep in mind, however, that a fence strategy has uncapped risk, should prices move higher.

Those who use a fence will do so if they either believe prices will not reach the sold call strike price, or are willing to accept a short hedge futures at the sold call strike price.
 
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If you have questions, comments, or concerns, contact Bryan Doherty at 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.
 
Carol Tillmann Front Desk Administrative Assistant | Stewart-Peterson Office: 800.334.9779 | Fax: 262.334.6225 ctillmann@stewart-peterson.com
www.stewart-peterson.com
 
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.

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