Jerry Gulke: Volatility = Profit Enhancement Opportunities

01:16PM Jul 22, 2019
Market volatility gave us several opportunities for profit enhancement.
( Top Producer )

In the previous four years, the corn market posted its highs for the season in June due to near-perfect growing conditions. This year threatens to have done the same thing, as the high, so far, was in June.  The late planting of corn and soybeans has also caused a different mindset regarding production potential.

We have been used to hot and dry weather affecting yields. So, it has been difficult this year for the market to get its arms around a new phenomenon, a wet and late crop, with December corn topping at $4.73. 

Beginning on May 13, prices reacted to a continuing wet outlook and posted a key reversal higher and buy signal when apathy and inherent volatility was at its lowest. The market “gapped” above $4, as if farmer selling wasn’t a hindrance, moving higher as planting delays turned very concerning. By the June 28 acreage report, prices had discounted a reduction in corn acres (not the larger “intended” 91.7 million acres).

The December corn chart shows price moves up and down of about $1.10, 50¢ and 40¢, with the collapse of 30¢ off recent highs (as of mid-July). The cumulative volatility equates to a $2.30-per-bushel swing. The disaster payments and “Trump bump” payments pale in comparison to what $2.30 times the national average yield means. That equals a $350-per-acre fluctuation. 

While it is unreasonable to expect a full capture of these price opportunities, even catching half a move is substantial in a year like this. Buying put options on the way up works until money evaporates before another opportunity to capture a higher price. 

The December corn chart shows the huge price range in response to the 91.7-million-acre corn surprise. Should the Aug. 12 World Agricultural Supply and Demand Estimates report, which will include revised acres, prove 91.7 million acres to be true and the 60-day forecast shows low odds of an early frost, the market’s reaction will be negative. But, should the outlook look dicey and production fall well below 13 billion bushels, Katie bar the door.  

Thus far, we’ve seen our domestic market worrying about adequate supplies and putting a weak global economy on the back burner. Market volatility gave us several opportunities for profit enhancement. However, apathy and lack of margin capital might have hampered capturing such opportunities, and that might also get in the way in of future events.  

Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group., a market advisory firm. Contact him at (707) 365-0601 or 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. Past performance is not indicative of future results.