Linda H. Smith, Top Producer Business and Marketing Editor
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.
Allendale Inc.
You can e-mail Linda H. Smith at lsmith@farmjournal.com.
