Short Week for Trade and Wheat Recommendations
Nov 27, 2013
This will be a short week trading activity with Thanksgiving. It should also be noted that Friday is first notice day of the Dec contract. As for wheat, I believe adequate winter acres have been planted. The crop is off to a normal start but the critical winter injury time period is ahead.
Global supplies are on the high side so it’s going to take an bullish supply reduction event to get prices back to comfortable levels. We however believe if you have taken out a high crop insurance level and merged it with a good selling program, profitability will still be solid for wheat. IF you are a wheat/bean double crop producer, you must get a floor under both your wheat and bean prices as soon as possible.
Since the market has not recovered, we are getting increasingly worried about the long term downside fundamental risk of wheat. We have no choice but to start recommending a put floor buying strategy.
Step 1: BUY at the money July 2014 $6.60 put. Have open orders to roll up 10- cent strike price when the premium price difference moves to 3 cents. This will only happen if the market rallies over 30 cents. The current cost of the put is approximately 45 cents plus commission.
Step 2: SELL out of the money July call at the strike price you would be will to assume speculative risk. My suggestion is go as high as possible and still get at least 20 cents of premium. At current price levels this would be a $7.20 put which is out of the money not quite 60 cents.
At this time you can stop and assume a net cost at expiration of 25 cent off the $6.60 put or $6.35 minus commission.
Step 3 OPTIONAL: SPECULATIVE SELLMarch out of money wheat puts to reduce cost. The objective would be at least 10 cent premium which suggest a $6.20 put which is only 30 cents out of money. This means the puts must be sold on an oversold condition. UMS will have to actively help you manage the risk of the short puts.
Are you having problems combining your cost of production with yield, basis, crop insurance and marketing strategy. Starting in 2014 we are offering a consolation service where we individualize all of these factors into a monthly printout so you know where your figures are at all times. Then when a decision about basis or marketing comes up, one can "know" the exact impact on your bottom line. This service will be provided on a per acre basis. So if you are looking for a one on one relationship with Bob Utterback in developing and implementing a total risk management plan now is time to get signed up. For the 2014 season Mr. Utterback is only going to take on 15 accounts. So be sure to sign up today before it’s too late.
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