Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.
Too Early to Sell 2013 Corn?
Aug 14, 2012
A bushel of corn that is only worth $6.40 seems pretty cheap these days. Unfortunately, that is near the current market price for corn delivered next fall. It is our opinion, believe it or not, that the most pressing marketing issue for farmers right now is the 2013 crop.
This year’s epic production disaster did the marketing for you. You’ve got $8 corn and $16 soybeans for fall delivery. Although the markets can certainly go higher, we’re interested in having the vast majority of this year’s production sold out at current levels (Producers that are unsure of 2012 production possibilities on their own farm should use option strategies to set a floor).
There is very little carry in the corn market, which means there is really no reason to store grain. If the all-time highs aren’t good enough, re-own your sales with call options, which have become significantly cheaper since Friday’s USDA report.
Next year, producers could be fighting an uphill battle. Again, corn acreage both here and abroad will be enormous. Every farming country in the world will try their hardest to overproduce grain.
Given good weather next year, we’ll undoubtedly be looking at record corn production in the US. It may only take one year for this market to return to lower prices.
We favor a combination of option strategies and forward sales in the December ’13 corn on a move above $6.50 on the futures board. We wouldn’t mind having up to 20% of next year’s production priced in the coming weeks if our objective is hit. We like using a strategy that involves scaling into sales. For example, sell 2% of your total production every day that the Dec ’13 trades above $6.50 for 10 days.
Let it be acknowledged that the proactive marketer hasn’t been very successful the last 3 years, as we dealt with significant crop issues in 2010, 2011 and now in 2012. There will be a year, sooner or later, that this pattern changes. Whether it’s 2013, 2014 or beyond, farmers should take the necessary steps to protect profitability every year.
RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Please contact your account representative for more information on these risks. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance.
Standard Grain, Inc.