New crop bean futures sale

By Jon Scheve, Superior Feed Ingredients, LLC 

This time of the year has the most weather risk because no one knows if July will have widespread drought conditions or favorable precipitation. Interestingly over the last 40 years, on average, the middle of June has been the best time frame to sell new crop corn futures. 

As I shared last week, on Dec. 27 I finished my 2022 bean sales when futures went above $15.

New crop bean futures sale

On Dec 27, November 2023 beans were trading above $14. For the last two years I sold 25% of my beans one year in advance. For the 2021 crop I sold at $10 and then for the 2022 crop I sold at $12.20. Keeping with the trend of selling in advance, I did it again for 2023 and sold 25% of my upcoming beans for $14.04.

Why did you do this?

At the time, none of my new crop corn was protected and I only had 10% of my old crop corn sold, and with no new crop beans protected I thought I was open to a lot of risk for my operation. After finding that my breakeven would be $12 on my new crop beans if my bean yields were normal, I thought it best to make a sale on part of my crop with nearly $2 per bushel profit in the trade.

Buying more protection on new crop beans

I then decided to buy protection for the rest of my new crop beans. On the same day on 75% of my anticipated new crop production, I purchased $13.80 bean puts for 78 cents, which provided a guaranteed $13.02 floor price until the end of October ($13.80 strike price minus 78 cent cost to purchase the put). Combining this put with my $14.04 sale mentioned above, gave me a guaranteed floor just over $13.25 after commissions. This left me with over a $1 per bushel guaranteed profit on all my beans, while still allowing unlimited upside potential on 75% of my beans, less the 78-cent put cost.

Since I’m using puts, any production issues due to dry weather will be less of a concern and there is no margin call risk on that portion of my hedge.

Why not sell more beans at $14?

I considered selling 50% of my beans and buying puts on 50% of my crop, but that only improved my guaranteed floor price by 25 cents ($13.50) and limited my upside potential if prices were above $14.82. With Brazil and US bean production so uncertain at the time, I was estimating that the upside price potential could be as high as $17, but the downside risk was as low as $11. 

When analyzing the risk versus reward for my operation, selling 25% of my beans one year in advance and then protecting the balance from a catastrophic price drop seemed like the best option for me.

While beans have come back $1.70 off their lows from two weeks ago, I felt more secure knowing my entire crop was protected during the $2.70 sell off since January. Even today with the weather unknowns facing the soybean belt I’m protected against the downside and still have a lot of upside potential.

Please email with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. 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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