December 1, 2022
Corn futures continue to sit in a very narrow trading range. The market is still holding the two-year uptrend thanks to tight U.S. corn carryout of 1.1 billion bushels. Yet, a lack of immediate bullish news is keeping the nearby March 2023 futures market from rallying higher than $6.75.
Depending on South American weather in the coming months and global demand, corn futures could either accelerate $1.00 higher, or gradually limp $1.00 lower.
Harvest is wrapped up, and what farmers have not sold is now sitting at home (or in the elevator) locked up, and likely unpriced. Does one keep storing corn and hope for bad weather in South America to spur U.S. prices higher? Or is it best to sell and just be content?
Not sure what to do with your corn at year end and early into the New Year? Here are three simple ideas to consider.
If you have corn in the bin, be mindful of your local basis levels as we wrap up into year end. Many farmers may be looking to get moving on cash sales sooner than later, and so basis levels may start to widen out as larger amounts of grain is moved to town.
Consider looking into cash basis contracts to protect what is likely still attractive local basis levels. If you commit to this strategy, know that you are required to deliver a set amount of bushels to your elevator, with the basis locked in, but the grain is still not fully priced. It is your responsibility to do a final pricing of the contract when you feel the futures price is at your target price (essentially you feel that the corn futures price will ultimately work higher).
Buy a put option
Not interested in making cash sales at this time, yet want to protect current value “just in case” of black swans, larger carryout on the next USDA report, or holiday volatility in the weeks ahead? Buying a put option (no margin calls) allows you to give yourself a price floor to protect the current value of corn futures prices.
March 2023 put options expire on Feb. 24, 2023 and covers enough time to get through the holidays, the big January USDA report, any wild weather in South American, and even the February USDA report.
One put covers 5,000 bushels, and the cost varies between 15 to 25 cents per contract (plus commission and fees), depending on strike price incorporated.
For the grain sitting in your bins at home, this may be an attractive way to have peaceful sleep at night, knowing the value of your grain is protected.
Make the cash sale and re-own with a call option
You may be thinking to yourself, “Why am I not selling $6.50 cash corn (or closer to $7.00 cash in some parts of the Midwest)? When was the last time I could give myself a Christmas gift like $6.50 corn?!”
If this is you, then make the cash sale. If you don’t want income this calendar year, ask your elevator if they are able to defer the payment into the New Year.
However, in the next breath you might whisper sarcastically to yourself, “Sure, I’ll sell it. That’ll surely make the market GO UP!” I’ve heard that joke from farmers over the years, and here is your potential solution to that notion.
If you make that cash sale, but then fear missing out on higher prices, then consider buying a call option. Buying a call (no margin calls) allows you on paper to be able to participate in any further upward price action, even though the grain has left your farm.
One call covers 5,000 bushels, and the cost varies between 15 to 25 cents per bu. (plus commission and fees), depending on strike price incorporated. March 2023 call options also expire on Feb. 24, 2023.
There is plenty of market volatility ahead into the New Year. And with nine big market fundamentals to be monitoring from now into early 2032, it will be hard to sift through the noise.
The above three strategies will help provide confidence and peace of mind so you can enjoy the holidays with your family.
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
About the Author(s)
senior market adviser, Total Farm Marketing by Stewart Peterson
Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.
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