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June 1, 2021
Are we hedging or trading?
When making marketing decisions as a farmer, rancher, or hedger, ask yourself: “What does Good look like?”
Having a cash bushel, or a pound of beef on the line places you in a much different position compared to a market speculator. Market bulls and bears will continue to argue their points, and ultimately, future events will reveal where market prices need to go. Instead of forming too strong of a directional price bias, we should be asking ourselves what successful marketing really looks like, are we looking for a profitable trade or are we managing the risk of cash marketing decisions we have or haven’t made yet?
Building more flexibility into marketing decisions seems to be a much more common theme than in recent marketing years, which is fantastic to see. Watching this evolve has been fascinating. The past year has likely re-shaped many marketer’s views on the tools and strategies they are using. A market like we have recently seen can quickly squeeze out those who step too boldly in front of it, highlighting flaws in many brazen strategies that were promoted in lower volatility years.
Ask yourself if your marketing decisions:
Manage enough risk?
Retain enough opportunity?
Allow you to manage a volatile market?
And one of the most important questions:
Are the marketing tools you use enabling you, or are they placing unnecessary stress and strain on your operation?
It can be as simple as you make it. Your marketing strategy does not have to be complex to be effective. In the market environment we have today, a simple approach that defends your choices can make the challenges of making marketing decisions a heck of lot easier to execute and manage.
Complexity in a marketing plan can often make your plan less effective, and when things go awry, can prevent you from positioning yourself for success in future years.
Finally, and as we are all aware, the market moves, and things change. Many in the industry give Options a bad rap viewing them almost always as ‘too expensive’ to buy. But the market moves we have seen can have a larger impact to your operations bottom-line and equity. Did you know that since last summer’s lows, Dec ’21 Corn Futures have seen a $2.81 trading range? That is $562 per acre on 200-bushel corn.
Even though we are not always writing a check for those moves, they are real dollars. Opting to not option-ize your marketing decisions may very well end up ‘more expensive’ if we get too directional or too black and white with our marketing decisions.
Selling ‘too soon’ and not covering that sale with a Call option has proven very costly, while doing nothing could also end up being very expensive. Use tools that enable you to navigate through the unknown and uncertainty ahead, and we will see how the rest of this story unfolds.
Contact Advance Trading at (800) 664-2321 or go to www.advance-trading.com.
Information provided may include opinions of the author and is subject to the following disclosures:
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.
Risk advisor, Advance Trading, Inc.
A Dodge City native, Brady joined Advance Trading in 2017. After graduating from Kansas State University, he spent the first four years of his career as a crop scout and advisor, assisting dryland and irrigated farmers with production decisions. Prior to joining ATI, Brady led a specialty corn project in western Kansas, working with both producers and end-users. At home, he enjoys spending time with his growing family, raising Angus cattle, coaching kids wrestling, and an occasional round of golf.
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