January 24, 2023
I love this time of year. Spring is right around the corner; we get a fresh start to another crop and another growing season. Our slate is relatively clean, and opportunity is ripe for the taking.
With last year behind us, it is a time of year where I hear many farmers say they’ll “finally get it right this year,” which is a must have attitude in the business of agriculture.
So, in the words of Dirty Harry, do you feel… lucky?
Luck is where hard work meets opportunity. The recent bull market has made marketing feel relatively easy. I’m afraid it has caused many to forget how fleeting and unforgiving marketing your crops can be.
Different years come with different challenges and price hasn’t really been a challenge over the past two and a half years. There’s no question, this year’s opportunities and challenges will be different than any year before this. Is your balance sheet ready?
You know as well as I do that the marketing decisions are never black & white. Too much focus in this industry is spent figuring out if a market will go up or down. I’ve yet to meet anyone who can predict the future with any consistency, let alone a market. Yet so many continue the search for this marketing nirvana.
A case for options
So, for 2023, why don’t you focus on a plan to help you make decisions and defend the cash marketing decisions you make? This will help you to make decisions more confidently. What tools can do this? Options.
I’m not here to post some sensational click-bait that corn will go to $10, and you shouldn’t sell a bushel for anything less than that. While that would make a lot of friends, maybe sell a few monthly subscriptions, I wouldn’t consider it sound advice for a number of reasons.
Neither am I here to tell you that you should get hedged up in a hurry because this is a repeat of 2013, and the best prices are in front of you right now. That might get some trades placed and bushels managed out of fear, but it likely doesn’t lead to a long-lasting relationship with my customer if I’m wrong.
Instead, I am here to tell you there is a gray area in between. You can have a plan to make cash sales but defend those sales with Call options, in case we actually do go to $10, and you no longer have bushels to reward the rally.
Last year’s wheat market was a great example of why we use this strategy.
But there are only so many bushels you should make forward sales on ahead of harvest; this is a common pitfall of marketing plans, especially in bearish markets. In a bearish market (if you don’t remember what they look like, ha ha) marketing plans often aren’t executed broadly enough to make a large enough impact across your operation. Put options are a great tool to defend equity more broadly on more bushels. They protect any long cash position you inherently have while remaining in a very bullish position, avoiding the production commitment of cash sales, HTA’s, forward contracts, etc.
Set for success
So, for 2023, set yourself up for luck (and success) by doing the hard work upfront. Study up on what you can do to position your business to make the most of the marketing opportunities that may come. Defend equity, gain control, and retain flexibility for whatever the year ahead holds. Call your advisor today and get your plans & orders in place. 2023 will only be clear only in hindsight; don’t put your operation in a position to ‘finally get it right’ in 2024.
Markets move and things change; here is a reality check amidst the noise.
Corn Futures YTD Range: 40 1/2 cents
Soybean Futures YTD Range: 83 1/2 cents
Chi Wheat Futures YTD Range: 82 cents
KC Wheat Futures YTD Range: 84 3/4 cents
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The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
About the Author(s)
Risk advisor, Advance Trading, Inc.
A Dodge City native, Brady joined Advance Trading in 2017. After graduating from Kansas State University, he spent the first four years of his career as a crop scout and advisor, assisting dryland and irrigated farmers with production decisions. Prior to joining ATI, Brady led a specialty corn project in western Kansas, working with both producers and end-users. At home, he enjoys spending time with his growing family, raising Angus cattle, coaching kids wrestling, and an occasional round of golf.
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