Q & A: Should I Be Making Cash Sales Yet?
Jul 05, 2012
Q. Kevin, What is your advice on making cash sales from here on out? My crop looks "ok," not devastated, but the top-end is probably gone. My guess is, I am about 30% sold at an average of about $6.00 right now. I have great storage and can easily store my remaining unsold production. I also have a chance to lock in some nitrogen for 2013 and was wondering your thoughts.
A. Locking in prices for 2013 on a percentage of your inputs is highly advisable, especially with corn prices trending higher. All I suggest is that if you lock in your inputs, you turn right around and lock in a percentage of 2013 sales as well. There is nothing worse than locking in your inputs at the higher end of the range and then watching corn prices fall apart as you move closer to harvest. If you are locking in inputs you may want to consider the inverted SEP13 contract as a target for sales. With prices approaching $6.20 per bushel, I am certain you can lock in a very good profit. Those who are comfortable using options on the board can consider buying SEP13 corn puts and selling out-of-the-money calls to help finance the positions. Remember, these can be costly to hold so I would only suggest small doses at this juncture. As for your remaining 2012 production, take 30% out of the equation and move it to the sideline, especially since you have good storage. This should keep us somewhat safe in the event something unforeseen happens to your crop. I am assuming you have insurance that will cover you up to 70-80% of your estimated production in case of a catastrophe into harvest. The remaining 40% that you have "unpriced" will be what we target during the next several weeks. My suggestion is to divide this 40% out into 6-8 equal increments. From here I would start building a timetable and price targets for pricing these bushels. Basically you have 6-8 bullets in the gun and you will want to take your shots between now and harvest (at the latest). I am NOT saying the top is here, but if I were in your position I might fire off a few rounds before the USDA report on July 11th. In my opinion, there is no need for re-wonership after making these sales because you still have 30% of your estimated production unpriced. As we work closer to harvest you will also need to consider building a floor under the 30% you are holding back. Buying puts or building some type of bear-put spread would make the most sense at this time. From what I have seen, you can buy MAR13 $6.50 puts for about $0.50 cents which insures you $6.00 corn with unlimited upside, not a bad play. If you are wanting to reduce your expenses and raise your floor you can consider buying the MAR13 $6.50 put and selling the $7.50 call for about $0.20 cents. This gives you a floor at $6.30 and HTA type sales at $7.30, if we should continue to push higher. Hope this give you some ideas.
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets. Just click here - Van Trump Report