Q: The 2013 harvest is almost wrapped up, but much of that crop is yet to be marketed. What are your thoughts on marketing 2014 production, and how aggressive would you recommend producers hedge that production prior to the planting season?
For Profits, Prepare to Move Fast
President, Allendale Inc.
Marketing grain will prove to be a challenge as farmers have their on-farm storage full of unpriced corn and soybeans.
For the year ahead, it seems those who sell early will reap the greatest benefits. End-users will increase bids from time to time to pull in inventory, which will quickly widen the basis. Watch for these opportunities and act before your neighbor. Farmers’ need for cash will also drive grain movement early in the year as land, machinery and rent payments are due. Carrying costs and condition of the grain will be important in getting a top price.
For demand, it’s all eyes on China, but competition from other parts of the world will keep prices sensitive to their interests. Domestic demand will remain strong as long as ethanol production is profitable and until the soybean meal pipeline fills up.
Our research suggests prices could drop as 2013 production moves to market in the first and second quarters of 2014.
Allendale suggests selling rallies in futures and any improvement in basis. Consider pricing in the May and July contracts to take advantage of the carry the corn market offers. Use rallies in nearby futures to sell soybeans, as the market offers no incentive to store. Option traders should look at selling strangles to add value in a sideways market.
Work to Extract Time Value
Senior Market Advisor, Stewart-Peterson
Sometimes opportunities aren’t real evident. Farmers have to look for them.
During the past decade, we’ve had a great deal of volatility in the grain markets. Now, all of a sudden in late 2013 and into 2014, it looks like we’ve got ample grain inventory. The trading range is smaller on any given day, and volume might be light.
This could be a trend of things to come. For producers who are searching for
marketing strategies, consider selling call options above the market. This means if you’ve got grain in storage, you are challenging the market to go higher; otherwise, you’re collecting a premium.
When it looks like the seasonal low for corn is in place, sell put options below the market. You can even deploy both methods and pit them against each other.
What you are trying to do is extract time value out of the market, and this works well when prices are range bound, which it looks like corn might be for some time.
Farmers should look ahead and try to get in that 90- to 120-day window when time erosion begins to pick up its pace. Therefore, individuals who sell options will notice that the options decrease in their favor. It would not be unusual to see the market flat-line for a while.
- December 2013