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Prepare to Embrace the Bear

July 8, 2008
By: Bob Utterback, Farm Journal Columnist
 
 

Sales Index Key

Excellent sales opportunity 10

Excellent buying opportunity 1

Corn 8

The corn ranking is at 8 and should be at 10 by the middle of June if we hit the gas on this corn market. Currently you should be 50% protected on 2008 in a long put strategy, 30% on 2009 and 10% on 2010 as we get above the $5.80 level. I will be on the edge of becoming a screaming crazy bear if we get the deferred corn markets into the $6.20 to $6.80 price range.

Now is the time to start thinking about how you're going to try to defend your long-term profit margins. With help from your banker lock up as much of your 2009 fertilizer, seed and other inputs as possible.

It's time to wake up, look in the mirror and say, "I love the bear!”

Beans 9

The bean roller-coaster ride is getting extremely difficult for producers and advisers alike. The problem in Argentina and the current tight stocks make the talk of sharply higher price values in July and August a very strong possibility—and in the same breath we talk about an acreage shift in the U.S. as a result of the late season.

Try to sell March 2009 close to $12 cash. Then, turn around and take out an insurance policy on your cash sale by buying a March $14/20 vertical call spread. At present time, this costs approximately 50¢. Hold the vertical call spread until late July to early August until we are sure about yields. At that point, I expect at least a 50% loss in the premium or a reduction down to $11.75 cash selling price. In this current trading environment most will hold until expiration as an insurance policy. The end result is you lower your net cash sale to $11.50, in the worse case, but you held the insurance policy for a $6 rally just in case something happens. This type of strategy allows me to go to sleep at night knowing I have a floor under the market but still some way to benefit if prices jump!

Hogs 4

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FEATURED IN: Farm Journal - December 2009

 
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