Options for Marketing Corn Now

January 25, 2017 02:27 AM
midwest grain elevator

These three strategies can help producers sell old-crop grain

Farmers across the country are swimming in old-crop corn. Carryover is weighing on the market, and many top operators find themselves in need of a marketing strategy for stored grain—and soon. Although analysts debate whether the market has put in a floor, farmers should take a forward-looking approach to marketing.

One time-tested strategy is to do nothing. For more than a century, farmers have sat on stored corn to wait for a better price, says DuWayne Bosse a South Dakota grain farmer and owner of commodity marketing firm Bolt Marketing. 

“If you’ve got corn in the bin like me, you could consider sitting back and waiting,” Bosse says. “I think much of the negative news is priced [into the market]. I think the downside risk is somewhat minimal, and we’re going to grind higher.”

Think Strategically. It’s only OK to sit and wait for the price to move higher if you’re doing so as part of a marketing strategy, Bosse cautions, not simply out of fear. If the end of March comes and you still have a lot of unpriced corn, you should look out to June or July futures and aggressively get rid of it, he says. 

Determine how much money you will invest in marketing and identify your threshold for risk, too.
“When we understand your budget and your risk tolerance, we have a better picture of what kind of strategies would be the most appropriate fit for your farm,” says Naomi Blohm, a market analyst with Stewart-Peterson. “We can then teach you realistically how those customized strategies will unfold under certain market scenarios.” 

Multiple Tools. Low- and higher-risk resources are available depending on a producer’s level of comfort.

Call options work well on a limited budget. This lower-risk strategy is also good if you aren’t interested in potential margin calls, Blohm says. “The advantage is that you pay a one-time premium up front, and if the market rallies, you are able to take advantage of the rally,” she says.  

Bull-call spreads essentially involve buying one call and selling another. Blohm shares an example of this lower-risk strategy: Suppose you buy a $4 call option for December 2017 and, at the same time, sell an out-of-the-money, $4.50 call option for December 2017. You’re able to capture the range between the current market price up to $4.50 per bushel. “It brings down the cost significantly,” she points out.

Buy a call and sell a put if you think prices will rise. Although higher in risk, this “makes the call strategy a little bit cheaper and gives you some additional muscle,” Blohm says. If December 2017 corn trades close to $3.90, you would buy a $3.90 call for December 2017 and, at the same time, sell a $3.40 put option under the market. “As long as the futures market goes sideways or higher, you’re at limited risk for a margin call and you have the ability to capture upside potential,” she says. Do this if you think the market low is in, Blohm advises.

What’s A Courage Call?

South Dakota producer DuWayne Bosse is advising his clients to wait to sell new-crop corn futures until prices reach more profitable levels this spring. At the same time, Bosse—who owns commodity marketing firm Bolt Marketing—is recommending they buy August short-dated new-crop $4.50 calls this winter to give his clients the courage to sell futures contracts later. “I like targeting $4 to $4.30 as a good place to sell December futures contracts,” Bosse says. 



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