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Which grain market strategies work in a down market?

Ag Marketing IQ: Spoiler alert – buying a put is the second most bullish position.

Matt Buckingham, Risk management advisor

November 19, 2024

3 Min Read
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The grain market has been in a supply-increasing phase since April 2022, with rising carryout levels for both corn and soybeans, which is reflected in the downturn trend in prices.

Over the past three years, the U.S. corn supply has grown significantly:

  • The 2022-23 crop year ended with a 1.36-billion-bushel carryout.

  • The 2023-24 crop year rose to 1.76 billion bushels, an increase of 400 million bushels.

  • The 2024-25 crop year then started with 1.76 billion bushels and is now up178 million bushels to 1.938 billion bushels. The increase is driven by a jump in yield, with the average rising from 177.3 to 183.1 bushels per acre, driving higher production despite a drop of 3.8 million harvested acres.

Now the concern is: What happens if we start next year’s carryout at 1.938?

When harvest is on pace and fall fertilizer and tillage gets done, I think USDA looks at that as one of the starting gauges to anticipate yield for the 2025-26 crop year. This fall went very orderly, so I think the foundation is set for a strong anticipated yield.

Watch planted acres

Acres are the other thing to watch. If some of those acres we lost shift back from soybeans to corn that would also put a lot of pressure on Dec 25 corn futures.

  • After talking to most of my producers I would say they anticipate planting more corn for the 2025-26 crop.

  • If South America has weather issues over the winter that could also affect the anticipated acres for this spring in the U.S. If – perhaps when – that happens we see a strong soybean market rally, giving us a marketing opportunity.

Related:3 pivotal points for holiday grain price moves

Given tightening working capital and locked-in input costs, it’s important for producers to manage risk by using flexible strategies such as options. We value control and flexibility, which is why we advise options strategies to protect the downside and give us flexibility to the upside. We feel that the cost of the premium is worth the value to be in control and to have a plan.

Strategies for a down market

The most effective strategies for producers depend on market conditions. Here’s the four strategies that most producers face and how they change in different markets.

In a down market, the most effective strategies, listed from best to least, are:

  1. Sell

  2. Sell and buy a call

  3. Don’t sell—buy a put to set a floor

  4. Do nothing

In an up-trending market, the strategies that most effective strategies, in this order, are:

  1. Do nothing

  2. Don’t sell—buy a put to set a floor

  3. Sell and buy a call

  4. Sell

We ultimately want to avoid using the last place strategy, which is either selling or doing nothing depending on the market. Both have a lot of risk in opposite market directions.

Related:The 5 Ws of transferring farm assets

By using options to set floors with puts or selling and purchasing a call to defend the upside or cost to hold grain we put ourselves in the second or third best positions we can be in. Most people are surprised when we say buying a put is the second most bullish position.

If your marketing has struggled over the past few years, it might be because you only have two cards to play, while the market has many. Learn what tools you have and find the people that can help educate you and stay in control of your business.

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.

About the Author

Matt Buckingham

Risk management advisor, Advance Trading, Inc.

Matt is native to West Concord, Minnesota. After earning a degree from South Dakota State University while minoring in Ag Science with Ag Marketing and Ag Business, Matt worked for Farmers Cooperative Elevator Co. as a grain originator for 7 separate elevators and various processing plants. Matt is now using his education and experience to serve clients across the state of Minnesota pursuing his passion to help farmers manage risk.

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