Scheve: How I Collected 18 Cents On Some Of My Corn In A Sideways Market
Oct 29, 2018
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Market Commentary for 10/26/18
After spending 5 days in Nebraska driving the combine, I returned back to Minneapolis along I-80 and I-35 Wednesday. There was a lot of progress in Iowa during that time frame. It looked like their harvest went from about 33% to 75% complete in less than a week. I even saw a little fall field work completed in southern Minnesota.
Market Action - How I Collected An Extra 18 Cents On Some Of My Corn In A Sideways Market
On a recent trade I managed to collect 18 cents of profit that I can add to my "pot of premium" on a later trade. Following are the details:
On 8/30/18 when Dec corn was around $3.58, I sold a November $3.70 straddle (selling both a put and call) and collected just over 23 cents total on 10% of my 2018 production.
What Does This Mean?
- If Dec corn is $3.70 on 10/26/18, I keep all of the 23 cents
- Every penny corn is below $3.70 I get less premium penny for penny until $3.47.
- Every penny higher than $3.70 I get less premium penny for penny until $3.93
- $3.93 or higher - I have to make a corn sale at $3.70 against Dec futures, but I still get to keep the 23 cents, so it’s like selling $3.93
- $3.47 or lower – I have buy corn sales back or simply take a loss on this trade.
My Trade Thoughts And Rationale On 8/30/18
This trade is most profitable in a sideways market. After hot and dry weather throughout August, a yield increase in the September report is uncertain. Still, typically corn bottoms out on the last trading day of August and starts increasing through October. While I'm comfortable with any outcome, I think the market continuing to trade sideways is most likely with what I know today, I'd be happy collecting the premium to add to a later sale.
On 10/24/18 when December corn was trading around $3.68, I bought the straddle back for 5 cents after commissions. This means that I netted 18 cents of profit on this trade on 10% of my production. I’m extremely pleased with the outcome of this trade.
New Straddle Trade:
On 10/18/18 when Dec corn was around $3.70, I sold a December $3.80 straddle (selling both a put and call) and collected just over 16 cents total on 10% of my 2018 production.
What Does This Mean?
- If Dec corn is $3.80 on 11/23/18, I keep all of the 16 cents
- Every penny corn is below $3.80 I get less premium penny for penny until $3.64.
- Every penny higher than $3.80 I get less premium penny for penny until $3.96
- $3.96 or higher - I have to make a corn sale at $3.80 against Dec futures, but I still get to keep the 16 cents, so it’s like selling $3.96
- $3.64 or lower – I have buy corn sales back or simply take a loss on this trade.
My Trade Thoughts And Rationale Today
This trade is once again most profitable in a sideways market, which I think is the most likely scenario right now. If the market does nothing through 11/23/18, I'll profit similar to the trade above.
With what I know today, I would be happy to sell corn for $3.96, even if prices exceed this amount in a month.
I’m a little concerned with the downside risk but, it’s the middle of harvest and historically once harvest is over, and grain is stored, there is usually a modest price recovery.
With corn prices below profitable levels, and I'm not sure when that will change, I need to manufacture trades that can help me maximize my profit potential as much as possible while still minimizing my risk exposure. The trade above is an example of an alternative solutions in a grain marketing plan. I have profited from the first trade and I feel that allows me to try and look for more opportunity for positive outcomes. I’m only placing this trade on a very amount of my ’18 production.
As always I know the potential risk and reward with the trade I’m placing and I’m willing to accept any of the scenarios that could transpire.
Interested in learning more? Check out these other recent articles:
Scheve: The Difference Between Speculating Vs Managing Risk
Scheve: What I'm Doing To Prepare If Prices Don't Rally
Scheve: How I Added Another 49 Cents Of Profit To My 2018 Beans By Capturing Carry
Superior Feed Ingredients, LLC
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