Market Strategy: Commodity Price Volatility Equals Opportunity

September 30, 2015 02:24 AM
 
corn_fall_harvest_(4)

For producers who witnessed profitable years, the past three years have been a challenge. The “easy” money is behind us. We are back to the basics of knowing basis, making money on market carry and having a strategic and flexible marketing plan based on fundamental and technical analysis with government and private crop insurance options.  

Volatility equals opportunity. It is rare I dwell on corn outlook in three consecutive columns, but there is a method to my madness to do so. The December futures chart on this page is an updated version of the chart featured in the Summer 2015 issue. It depicts graphically the unexpected pricing opportunities thought to be elusive just a few months ago. 

Adapt As Needed. Flexibility has worked well this year. Knowing when to accept risk (retain ownership) and when to pass off risk (hedge it) while maintaining ownership of the 2015 crop has proven fruitful.  

Futures dropped to $3.62 ½ before the June 30 stocks and acreage reports that offered a low-risk opportunity to take hedge profits. Based on our analysis, The Gulke Group reinstated hedges the week of July 13.

The subsequent $1 drop ahead of the September crop report set the stage for an opportunity to once again lift hedges, replace them with cheap puts (depending on risk tolerance) or both. 

This corn price chart shows the importance of USDA crop reports. Stocks fell in the June 30 report and again in the Sept. 11 report, and odds favor another lower revision on Sept. 30 as USDA has underestimated demand all year.

Hold Your Own. It’s hopeful agriculture dodged a bullet because 2015 weather negatively influenced production, but the jury is out. October will give us a more accurate assessment of west-versus-east, but it might take until January 2016 to know the full reality. 

If producers become tight holders of grain this fall as they did the fall of 2014, I think prices will offer an opportunity at the highs made during August and September. The 40¢ trading range shown on this chart will likely need some bullish news from the October USDA report to offer a shot at July highs near $4.50.

Farm-stored corn delivered next May could offer a premium of more than 40¢ versus delivery out of the field. As effects of El Niño play out in South America, a $1 rally off harvest lows would not be a surprise.

Be ready for opportunities. Prices proved low enough Oct 1, 2014, to entice producers to put crops away and shut bin doors until spring. The market does not believe we can perform the same marketing miracle we did last year. I wouldn’t be too sure.

Corn Price Swings Create Sales Windows

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Recent volatility in the corn market suggests it might be wise for producers to store the crop on farm this fall. That’s because delivery next May could provide a premium of more than 40¢ per bushel.

 

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Comments

 
Spell Check

bulldawg
Greensburg, IN
10/7/2015 01:16 PM
 

  Last time I checked Hedging meant to offset futures risk with an eventual cash sale, with the thought of locking in a price at a (hopefully) profitable level. Getting in & out of the market is speculation. Do not confuse the two regardless how smart you think you are. Call a spade a spade Mr. Guilke. If anyone could with total confidence, consistantly play the "so-called" selective hedging game, he surely wouldn't need to sell subscriptions.

 
 
PullMyFinger
Chappell, NE
10/7/2015 09:20 AM
 

  Non-farmers love to make it sound complicated hoping someone stupid will allow them into the game. Sell your grain on the cash market ONLY. It gets you the best possible price both today and tomorrow by keeping the "speculators" out.

 
 

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