This could be the best opportunity you have to price this year, believes Bill Biedermann of Allendale Inc. "Corn is nearing
the target to get a lot of old crop priced out and all your hedging done on new crop,” he says. "I was just at a major economic conference. The feeling is that as soon as this crop is planted, the market will struggle for the balance of the year. So you're pricing opportunity now — on this planting risk rally, not this summer.
"I am selling some cash while basis is decent and re-owning some with a three-way July call spread for a net cost of 7¢,” he says. "On new crop, I am looking at two factors.
1. "If you need to get it on today: a $4.10 three-way spread for a cost of 10¢. It will cost you 44¢ to buy a $4.10 put option and you can sell a $4.80 call for 25¢ and sell a $3.20 put for 9¢--there isn't much risk below that level," he says. "If you figure a -30¢ basis and 185-bu. yield, you can guarantee a floor at $678 and keep upside potential to above $800/acre."
2. "If you can gamble we will rally another 20¢, place an open order for a $4.20-$5 box at 25¢ (buy a $4.20 put at 49¢ and sell a $5 call). Then plan to place an open order to sell a $3 put later this year, which, if filled, would reduce cost to 10¢," he says. "However, our Evaluator software shows you only gain about $10-$12/acre on the upside and leave yourself open to more risk."
In both cases, if a summer rally should occur, you could enhance your situation by leaving these in place and selling cash or futures at a higher level. "The math is unbelievable," Biedermann says.
For More Information
See the March issue of Top Producer for more information on these and other strategies.