Analyst Insights On Winter Pricing Opportunities

January 11, 2018 05:14 AM
Grain bins with snow

Q:    The grain markets have been mired in price action indicative of their oversupply situation. But producers need to be focused on the future and anticipate better pricing opportunities. What kind of price strength do you see, if any, this winter? In addition, can you share some insight into your 2018 marketing ideas?

Sell Cash Grain And Replace It On The Board

Mike Florez, Founder, Florez Trading

As someone who analyzes markets using technical analysis, I find the corn market mired in a sidewise trend that has been in effect since June 2014. Overlaying a Bollinger band on the monthly corn chart reveals a trading range of between $3.10 and $3.95.

The design of a Bollinger band will encompass about 95% of all prices. That means when futures trade outside of the band, a trading opportunity presents itself.

As of now, there is no obvious fundamental supply and demand issue that will take us out of the current range. To get much of a price raise, we will need a smaller crop to develop out of somewhere in the world.

There are potential weather problems in Argentina, for example, and there is persistent dryness in the southwestern U.S. Maybe this can turn into something that will move markets.

If we break out over $4, a potential target could be $5.75, which would be a 50% correction up from the high we made in 2012.

If I were a producer, I would rid myself of all cash grain with the idea of replacing it on the board. July corn calls with a strike price of $2.80 are only 11¢, which could serve as an insurance policy.

Contact Mike:

Defend Your Balance Sheet With Options

Brian Basting, Commodity Research, Analyst, Advance Trading

Price prediction is impossible, but a few factors might provide price strength. As world demand for both soybeans and corn expands, the need for large crops will remain high. A weather scare or realized production shortfall in Brazil, Argentina or both could fuel a rebound in the market. Given the ample worldwide supply of coarse grain and oilseeds, though, extended rallies might be difficult to see. 

With nearly all producers owning a majority of 2017 corn, it’s easy to lose focus on 2018 prices with December futures 32¢ higher than nearby March futures. Given this, it’s important to establish downside price protection for 2018 production and defend your balance sheet against the possibility of lower prices once the cost of inputs for producing the crop have been locked in. 

A variety of marketing tools are available to accomplish the objective of establishing a price floor while maintaining flexibility to participate in rallies. The purchase of a put option or a forward cash sale accompanied by the purchase of a call option achieves this goal. One benefit of purchasing options now is the low implied volatility, which makes puts or calls low-cost resources compared to recent history.

Contact Brian:



Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades.

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