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Grain Hedge

RSS By: Brock Schimbeno,

Grain Hedge is a self-directed discount brokerage that saves farmers money when trading in the futures and options market. For $7 commissions per side producers can execute their marketing strategy with authority, any time the markets trade.

Harvest is Nearly Complete, Where Do Prices Go Now?

Nov 14, 2011

This afternoon’s crop progress report showed that corn harvest is nearly complete at 93%.  Soybeans are even closer to completion at 96% harvested.  With this year’s crop nearly all in the bin, many producers are asking ‘Where do prices go now?’ 

Last week’s USDA/WASDE report did little to excite the markets in any direction as we continue to trade mostly sideways and range bound.  Instead of wondering where the futures markets are headed, producers should focus on certainties when marketing their cash grain.  Basis levels are at historically high levels for this time of year that is certain.  To be certain of these basis levels, take advantage by either selling in the cash market or using a basis contract to lock in this high level.  The futures market is only paying 18 cents to store until July, which certainly doesn’t pay for cost of carry.  Producers need to think about marketing their cash grain now as the economics are not present to store and wait for basis or cost of carry to improve.  If grain is marketed now and a producer wishes to keep the top side open, use the board to re-own.

Marketing now has several advantages.  First, it locks in basis, price, or both.  Simply selling in the cash market would lock in both price and basis.  Second, money will be saved on storage (either commercially or privately).  This money could be used to re-own on paper.  Re-owning on paper would re-open the top-side potential.  A strategy with defined risk would be to go long call options, where the premium paid is what is at stake.  Long futures can be used as well, but the risk is undefined and a producer could be subject to margin calls.  Lastly, using the board instead of holding the cash grain frees up the timing of sales.  Board positions can be liquidated or added with a few clicks of the mouse or by giving your broker a call. 

To give this strategy a try, sign up for a free demo today! Or speak directly to one of our brokers at 877-472-4607.


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