I hope you all have a safe and prosperous New Year. Guess what? There’s a way to shift “hope” to “reality” with a few simple marketing decisions. There are things you can be doing right now to make sure that 2022 is a prosperous year for you.
One thing that we do know for 2022 is that input costs are higher. We have record nitrogen prices and for many, that price may not be locked in yet. Even if nitrogen prices were locked in, overall inflation will make for higher costs this year.
What this tells me is that we do not have as much room for error. For the most part, costs for the 2021 crop were locked in before markets rallied. Once we got into 2021, we continued to rally well into spring. We don’t know if grain prices will rally as we go into 2022 or not, but with higher costs, we can’t afford to watch them work lower.
Ready for prosperity
The good news is that even with higher costs, the market is set up today for you to manage risk and cushion your marketing plan so you can have a prosperous 2022. You can insulate your balance sheet with the use of call and put options.
If we look at corn, we have had opportunities to sell new crop corn at or near $5.50 December futures. You can get call options to keep upside open, but also know that you have good sales on the books to start the year. On what is not being sold, you can look at put options to try and protect production at or near $5 December futures. If you do a combination of this, you can make sure that you have a floor at or above $5 futures, but you have upside open if prices climb higher.
For soybeans, we have had opportunities to sell new crop beans at or above $12.50. We can also use put options to cover what isn’t sold and establish a floor near $11.40. If you average the sales with the put floor, you can manage bean risk with an average at $11.95 November futures, worst case scenario, and still have upside open if prices go higher.
With all the unknowns out there for 2022, it sure seems like a good thing to have $5 and $12 locked in as a price floor, but also have upside open to go with it.
Nearby corn moved $2.96 from high to low in 2021. Beans moved $5.06 from high to low in 2021. Can you afford to see that big of a move in 2022, but have it go in the wrong direction? You can’t afford to be completely sold and watch it move that much higher, and you can’t afford to do nothing and watch it move that much lower.
You can protect profitable levels right now with the use of options. You can essentially block out all of the market ‘noise’ and let the market do what it wants, knowing you will be in good shape either way.
If you are protecting profit today, you are insulating your balance sheet, but you are also allowing room for it to be better if we rally from here.
You don’t have to ‘hope’ for a prosperous 2022. You can make it a reality right now.
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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.