Did someone say volatility?

Volatility, volatility, volatility!

Volatility, volatility, volatility! Gone are the days of quiet market action we became accustomed to the last few years, only to be thrown into 40¢ to 50¢ swings in the bean market and 20¢ swings in corn and wheat. I guess we will not be putting that marketing plan on auto pilot any time soon.

South American weather has been the driving force along with unprecedented Chinese demand. Throw in a worldwide pandemic and you have the makings of a full-on commodity bull market. And we may just be getting started.

It does feel like prices should keep going up and up, but we have seen this all before. I can not stress enough the importance of having a marketing plan in a volatile bull market. When you see a price level you know you are profitable at, price some grain. Then buy out of the money calls, so you are not left out of a major run. This is really the smartest thing you can do.

Spend some money on the calls for two reasons:

  1. Re-own what you have sold.
  2. Give yourself the confidence to keep selling into the rally. It is always more fun to sell into a rally, than to play catch up or throw in the towel on sales as the market crashes.

To give yourself enough time, buy what are called short-dated options. These options trade off new-crop December. You can buy July or August short- dated options which will give you coverage for summer weather without spending money on time all the way into Thanksgiving, which is when the full December options expire. 

Set price targets and put offers out at your elevator and get priced where you are comfortable with based on your average production. Have calls in place and even spend money on puts for what you know you plan to store or are not comfortable selling. You want to be in a position that no matter where the markets trades, your plan is in place. You have left yourself opportunity by purchasing calls against what you have sold, and you managed risk by having made sales and owning puts against what you have not sold.

Remember in other bull market years, prices only go up for so long, and then they fall twice as fast and twice as hard. Then it is over for a while. So, enjoy this market run, be diligent and prepared and maybe even a little aggressive. Your efforts will pay off.

If you have questions, you can reach Cathy at cekstrand@s-pelmwood.com or visit TotalFarmMarketing.com for more information.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. 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. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. 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 Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. 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. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

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