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Advanced Marketing Class: Tommy buys at-the-money put options on December corn and November soybean futures before harvest.

Ed Usset, Marketing specialist

October 24, 2023

3 Min Read
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In the last blog, Tammy Twostep gave us a complete view of marketing from start to finish. Before harvest, Tammy copied Terry Timer by pricing 20% of her expected crop in March, April, May and June.

After harvest, Tammy copied Earl Eitheror. If carrying charges were large, she rolled her hedge forward to the July corn or soybean contract. If charges were small, she lifted her hedge at harvest and held unpriced grain.

Tammy’s marketing results were impressive — her start-to-finish approach often beat Barney Binless, who has no interest in pricing grain before harvest. Tammy’s average price was 12% to 13% better than the harvest price.

Only one year for Tammy stands out as a red flag: the drought year of 2012. That year Terry’s preharvest sales were too early and cheap as prices soared during the drought. Earl’s holding of unpriced grain after harvest led to more losses as market prices returned to earth from harvest highs.

Even if 2012 is an outlier, it could happen again. If you’re impressed by Tammy but want no part of a 2012-like disaster, what can you do?

Let’s meet her twin brother Tommy. The difference between Tammy and Tommy is their approach to marketing before harvest. While Tammy emulates Terry, Tommy prefers the approach of Uncle Buck. Instead of selling new-crop futures like Terry, Buck buys at-the-money put options on December corn and November soybean futures. Both Tammy and Tommy copy Earl after harvest.

Over a 34-year period in corn, Tommy had an average price 28 cents per bushel better than Barney’s harvest price. This is 9 cents less than Tammy’s 37-cent advantage, which is the same difference between Buck and Terry. (What did we learn from Buck? Options in the long run will cost.)

Despite a modestly lower price than Tammy, Buck beat Barney in 29 of 34 corn years. He also did well in the category of years with a big price difference. In 14 years, Tommy’s corn price was 10% or higher than Barney’s. Barney beat Tommy by a comparable margin in two years.

Tommy’s price for soybeans averaged 77 cents per bushel better than the harvest price (but 18 cents less than Tammy). He beat Barney in 3 of 4 years and sported a 19-4 advantage in years with a price difference above 10%.

When did Tommy excel? In 2012, his use of put options let him beat her by $1.39 and $1.25 per bushel, respectively, in corn and soybeans. Despite their long-term cost, options will have their moments.

Meet the rest of the crew: 

Barney Binless

May Sellers

Sally Sellthecarry

Earl Eitheror

Justin Price

Aunt Tilly

Terry Timer

Hank Holder

Margery the Fortune Teller

Rocky Bottom

Peter Paperfarmer

Wally Whipsaw

Covered Cal

Darla Discipline

Tammy Two-Step

Ed Usset is a grain market economist at the University of Minnesota, and author of the book “Grain Marketing Is Simple (It’s Just Not Easy).” Reach Usset at [email protected].

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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Grain Storage

About the Author(s)

Ed Usset

Marketing specialist, University of Minnesota Center for Farm Financial Management

Ed Usset is a marketing specialist at the University of Minnesota Center for Farm Financial Management. he authored "Grain Marketing is Simple (It's Just Not Easy)"; helped develop "Winning the Game" grain marketing workshops; and leads Commodity Challenge, an online trading game. He also blogs about grain marketing at Ed's World

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