Despite political and economic uncertainty that lies ahead, the 2021 grain markets are once again presenting an opportunity to lock in good starting prices. Starting 2021 with almost $4 corn and $10 beans is a nice way to jump into marketing next year’s production!
One of my customer’s stated it best today: “I don’t want to miss covering at profitable prices, but make sure to leave upside open!” This same customer in early 2020 said very clearly to me, “I don’t like options!” He indicated he was very happy to have early sales covered with some calls.
What’s the first and greatest lesson we learned from 2020? You can’t predict price movement. Using this will help you do a better job marketing the next crop. When you’re presented with prices and a starting point that can make you profitable, take advantage of those opportunities.
Stay calm and use the tools
Using the tools as they are intended will help you make those decisions to be proactive in the marketplace. But, you have to tune out the noise. Keep it between the ditches! Bottom line, your job is to be profitable.
Think about driving on that slippery road in the winter. You don’t need to get there in a hurry. You need to be patient and keep driving forward. Just like with your marketing. Making sales and buying calls is one tool to help accomplish that goal. Another tool for even less commitment is to buy a put. Both can have similar ending results -- they establish a minimum price.
There is much to manage moving forward, whether it is the crop you are finishing harvesting or the one you are planning to grow. Looking at the opportunities today and preparing to manage each part of the marketing decision will help keep you profitable. This harvest has shown in many areas why it is so important to manage each piece of the puzzle when it comes to grain marketing. Basis moves have been tremendous in the past 30 days. If you have been managing those opportunities, it has enabled you to add nicely to your bottom line.
You cannot sit back and watch opportunities go by. You need to understand the tools and use them when the opportunity is presented.
If you feel you can predict these market movements, then no worries. But I don’t know too many people who felt earlier this year that we would see a price rally and basis improvement in most of the Midwest in the middle of harvest.
Both corn and bean basis had wide swings in the last 30 days in many locations. Much of that was driven by barge freight, another piece of that puzzle that is likely out of your control. Take control of the parts of grain marketing that you can control.
Minimum price contract defined
I recently had a call from a non-customer asking me to explain a minimum price contract. This is a contract many elevators offer as well as being able to execute it through your own brokerage account. There are some differences between the product the elevator offers versus one you control in your own trading account, but they accomplish a similar ending price.
Definition of minimum price contract: Establishing a floor price while maintaining upside in the futures market. This can be completed through an elevator with a commitment to deliver the grain to them or through your own account without commitment to deliver the physical grain.
In 2021, maintain flexibility but add certainty. That will help you to be less emotional when prices are moving in a direction you don’t expect.