Are prices high enough to cure high prices?

By Jon Scheve, Superior Feed Ingredients, LLC

Futures values are similar to Midwest weather, if you don’t like what is happening today wait until tomorrow and it will change. Last week:

• July corn finished up 22 cents at a new high of nearly $7.35

• December corn finished up 24 cents near $6.70, which is only 3 cents from its record high on Wednesday

• November finished up 30 cents, just shy of $15

• July wheat finished up 52 cents, just below $11, keeping it within the $10.25-$11.25 range from the last two and half weeks.

The destruction of Ukraine’s critical export infrastructure suggests that even if the war ends soon, it will take several months, if not years, before things resemble anything “normal.” The market will need to ration demand moving forward. High prices usually cure high prices, but these prices may not be high enough.

On March 31 the USDA will release their 2022 planting intentions estimates. The USDA has never released a combined corn and soybean planting acreage report above 181 million acres, so I expect that to continue this year too. Last month the USDA Economic Outlook Forum projected 92 million corn and 88 million bean acres for a total of 180 million combined acres. I expect this report will show 92 million to 92.25 million corn and 88 million to 88.25 million bean acres for a combined total of 180 million to 180.5 million acres.

Market Action

April Straddle 

On Jan. 19 when May corn was trading at $6, I sold a $6 April straddle (where I sell both the $6 put and the $6 call) and collected over 46 cents. I placed this trade on 10% of my 2021 production. The options on this trade would expire 3/25/22.

What does this mean?

  1. If May corn is above $6.46 on 3/25/22 I would let this option execute, giving me a short futures position of $6. With the 46 cents I collected, the final sale would essentially be like selling $6.46.
  2. If May corn is below $5.54 on 3/25/22 no sale is made but, and I would lose penny for penny whatever the difference between the value of May corn is below $5.54.
  3. If May corn is between $5.54 and $6.46 on 3/25/22 no sale is made, but I would get to keep some of the 46 cents of profit from selling the straddle that I could add to a later trade. The closer the market is to $6 on that day, the more profit I keep because I will either have to buy back the $6 call or $6 put before options expiration.

What happened?

On 3/25/22 May corn was trading at $7.35, so I let the call option execute at $6 and with the 46 cents of profit I’m left with a sale of $6.46 on 10% of production. 

This trade takes me to 80% sold on futures for the 2021 corn crop.

Please email with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

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