The vast majority of corn and soybean growers have done very little or no marketing of 2013 crops, which is far less than normal. "The average person has done very little marketing," said Dave Fogel, vice president of Advanced Trading at the Top Producer Seminar in Chicago. "I don’t remember a year with less booked."
Many producers are waiting until there is a rain in the Western Corn Belt before making any forward sales, Fogel said, which he believes is a mistake. "I don’t believe the market will wait two to three days after a rain (so producers can price their crops)," he said. With higher costs across the board, "a $1 to $1.50 market drop on (new crop) corn and we could be flirting with breakeven."
He does not believe in changing marketing strategies radically from year to year. Too often, Fogel said, producers market based on what happened the previous year. He also thinks that producers spend too much time listening to market analysts talk about what they think will happen, when nobody knows. "You can go on the Internet and find people who say the market will go up and an equal number who believe it will go down," he said. A better way, he said, is to write down your marketing plan, then execute it.
Fogel believes that producers should seriously consider protecting both the upside and downside with options. Producers can protect the upside with call options and downside risk with put options, he said. "The market does not pay you to hold onto your bushels," he added. Producers can sell grain in the cash market, but re-own it with call options that gives them upside protection should prices take a sharp turn upwards. Put options, on the other hand, establish a price floor.
For producers who have not used options and are not excited about 30 cent premiums or more, Fogel suggests getting started with short-dated call options for corn. These options have a shorter time frame, expiring over the next few months for options purchased today, but may only cost 15 cents. The downside to using them is that once the options expire producers have no price protection compared to a traditional option. He said that options are not static, however, and must be managed.
Fogel does not favor basis contracts. If the basis is strong, he thinks a better way is to sell grain in the cash market to capture strong basis, then protect the potential for stronger futures prices with a call option. "I believe it’s important to have a flexible marketing strategy," Fogel added, which options provide. Fogel also is not a big fan of scale-up selling because he has seen that many producers sell too much when prices are low and not enough when prices are high. "Scale-up sales don’t work. Instead of scale-up sale, buy an option and be done with it. It really is simple," he said.
He disagrees with the statement some have made that 95% of options expire worthless. "That’s impossible," he said. That would imply that the trades have no value to either buyers or sellers, which Fogel believes is implausible.
See full coverage of the 2013 Top Producer Seminar.
Thank you to the 2013 Top Producer Seminar sponsors and co-sponsors:
Agrigold, Agrotain, Asgrow/Dekalb, Apache Sprayers, BASF, Bayer, Cargill, Challenger, Dow, ESN, Firestone, DuPont Pioneer, RCIS, SFP, Syngenta, Top Third Ag Marketing, Advance Trading, Integris, Michelin, Novozymes, Kennedy & Coe, Illinois Soybean Association, Water Street Solutions