Head to Head: Strategies for Corn Coverage

 
Head to Head: Strategies for Corn Coverage

Q: In the last two years, the corn market saw its best pricing opportunities in the spring. As producers move into planting season, do you foresee a similar pattern setting up? What is your marketing plan for the first half of the growing season?

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 Matt Bennett     
 Owner, Bennett Consulting

Hedge In Stages When Crop Tops $4.15 Price Point

As we went through the winter timeframe, going to meetings and visiting with producers, I was reminded of how similar price action has been compared to 2014. In January and February of this past year, producers were worried, to say the least, about profitability. This year, with lower prices of corn and soybeans, the situation has been magnified.  

When marketing 2015 corn, producers first and foremost need to know their breakeven cost of selling corn. Once we quantify this at reasonable yield levels, we can make business decisions that remove some of the emotion. One size does not fit all this year, as some producers will need to be quite optimistic about yields, prices or both. However, assuming we plant 88 million acres of corn or fewer, I feel we’ll have a great chance for some rally opportunities this spring and summer as U.S. and world balance sheets tighten. 

Any moves to $4.40 per bushel and above will be met with strong hedge pressure. Marketing some on the way up and through these levels is advisable. I’ll be patient but will hedge in increments once corn gets above the $4.15 spring insurance price and will be willing to protect up to 66% of my actual production history if corn hits $4.50. 
 

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Ted Seifried     
Chief Market Analyst, 
Zaner Ag Hedge

Protect Margins Yet Allow For Opportunities

In the spring of 2013, corn prices were good because we were still on our way down from record high prices. There was some concern we would see a repeat of the 2012 drought. In 2014, spring prices were more favorable because of our near-perfect growing season that pushed prices to extraordinarily low levels. This year might be a different animal. With a projected drop in acreage for the second consecutive year and talk some producers might look to spend less on input costs, we have very little room for error this growing season. 

We are recommending producers have 40% to 60% of production covered with option strategies that leave the top end open or at least have a wide window allowing for higher prices. On one hand, we are concerned if we have another stellar growing season, stocks could continue to build and prices could continue to fall. On the other (maybe more likely) hand, we think the lower acreage and possible cuts in inputs will make corn prices more sensitive to weather, which could provide better pricing opportunities. If weather issues cut into production, corn prices could be much better in the late summer-to-fall timeframe. The key is to be protected but to not give up too much opportunity.

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 that the advice we give will result in profitable trades.

 

 

 

 

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Comments

 
Spell Check

Victor
NewYork, NY
4/1/2015 03:25 PM
 

  I learned in the market that no one can give or guess what will be future price especially such a direct number as 4,15 or 4,50 no one available to know it never and ever it is his opinion maybe more it is his hope that's all

 
 

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