Producers are hanging onto a lot of corn and soybeans in their grain bins right now, pressuring commodity prices. If growing conditions are favorable in 2016, $3 corn and $7.25 soybeans is a real possibility, says Mark Gold, Top Third Ag Marketing. That’s why you need a $3 corn contingency plan.
“The fact of the matter is if everything goes pretty well this year, could we be at $3 corn? We could be pretty quickly,” Gold tells “AgDay” host Clinton Griffiths on the Agribusiness Update segment for Tuesday, March 8. “We want to protect that. I believe in every year since 1973, we’ve had one opportunity to sell grain at profitable levels. I don’t think this year it will be any different. We’ve got to take advantage of that, but until that happens we can’t let it run away in the short run.”
Gold recommends short-dated options as a strategy for managing risk.
“They’ll expire on June 24 on corn and soybeans,” he explains. “You can spend 10 cents on an at-the-money corn put, 20 cents for an at-the-money soybean put. If we go down to $3 corn, those puts could be worth 60 or 70 cents. Now you can take money out of those puts, put that in your pocket and then if we do get some kind of a summer rally, sell at around $4.30, $4.40 or whatever it is. Add that 60 cents you might make on that option, and now you’ve got a year you can live with.”
Factors that could push commodity prices lower, Gold says, include more planted acres being included on USDA’s Planting Intentions report due out March 31 and a favorable 90 day weather forecast predicting average temperatures and average precipitation.
Click the play button below to watch the complete interview with Gold on “AgDay”.