Maintain a Balanced Grain Marketing Approach, Analyst Says
As harvest picks up steam, so could the potential for price movement, as the market factors in changing expectations for this year's production.
Soybean prices have been on the rebound lately due to good demand, and expectations for dry regions of the Midwest are to potentially yield less than expected. On the other hand, if yield numbers come in greater than anticipated, or demand slows, prices could be in trouble.
The key for the next 3-6 weeks, as you are busy in the field, is to maintain a marketing balance. Now is not the time to take your eye off the ball.
View the recent rally of near 60 cents in November futures as an opportunity to make catchup sales. Prices peaked twice over $10.00 (February and July) and recently at $9.87. While this high is lower than the last two rallies, you now have more information available regarding this year’s crop. Yes, demand is strong. If yield numbers are higher than expected, futures could retest their low from this past June at just above $9.00.
Consider a defensive posture through the use of purchasing puts in either November or January futures. If using the January contract, consider selling an out-of-the-money call to help finance your put. The latter strategy is called a fence. A fence strategy, unlike only purchasing a put with fixed risk, has unlimited risk because of the short call. Make sure you understand the different scenarios that could occur, and how the fence position will be affected.
Unlike soybeans, which have experienced increased volatility, the corn market continues to consolidate. Is the low in? There is no guarantee that a low is in place, despite a very friendly looking key-reversal on August 31. December futures are currently trading above $3.50 with a contract low at $3.44.
As yield results are known, it is likely the market will find a price trend. A defensive posture strategy is to purchase December 350 corn puts as a safety valve in case of a price sell-off. Should prices recover, the put could lose value, and you'll be gaining on unpriced corn. If behind, rallies of 15 to 25 cents could be viewed as opportunities to make catch-up sales. Price rallies may also offer call selling opportunities in deferred futures, as a carry from front month futures to back months exist.
It is challenging for many farmers, especially during harvest, to keep track of everything. Have a conversation with your advisor, asking them to help you look for opportunities and find the appropriate approach for you to take action.
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.