Every summer it seems like the market has a scare of some sort that brings a rally, but I typically miss out on it. How can I get myself more prepared for those opportunities? – L.K., Neb.
You’re not alone – many farmers feel the same way. As this summer scenario is happening, they feel like the market will go higher, while their crop is getting smaller. It’s easier to think about how to deal with this situation now, when emotions aren’t as high.
The first step is to know your own tendencies. For example, some of the farmers we work with tend to get very aggressive with sales early on, but then they run out of ammunition for the market as time goes on. On the flip side, sometimes your tendency can be your advantage, depending on the market.
Ask yourself: What scenarios tend to get me into trouble – and what can I do to prepare? Here are a couple approaches for those who are reluctant to take action on rallies. They might decide to make a small enough sale that doesn’t feel overwhelming. Run the numbers on the farm’s financials and choose to take some sort of action when the rally happens.
It can also be a good idea to understand when put options might be helpful. Many farmers aren’t very familiar with how and when to use options. Finding and working with someone with more familiarity can be helpful.
Options are basically an insurance policy. For example, there may be a point when a farmer wants to lock in a floor, but is fearful they might not have enough crop or that the price could go higher. That’s a time to potentially look at buying an option to create a floor, which can buy some time and security.
Overall, make a decision – while emotions are low – about what you will do when the problematic situation or scenario happens. Be sure to always evaluate personal risk associated with marketing. Have a plan to sell a quantity that won’t create issues if you end up being wrong. Find someone to give you some guidance on how using a tool such as a put option can bring more confidence about protecting price.