By Jon Scheve, Superior Feed Ingredients, LLC
December corn futures traded to $4.47 on Nov. 29, the lowest price of the calendar year. The massive carryout has been too much for the market to handle and export demand remains weak. Likely some added pressure came from farmers who were selling or pricing grain last week as their basis contracts against the December futures were up.
Previous 2023 corn crop sales recap: Against December 2023 futures
- Sept. 7, 2022 — sold 10% at $6.25.
- June 23 — sold 10% through option trade at $5.25.
- Oct. 27 — sold 10% through option trade at $4.75.
Floor protection on remaining 70% of corn
On Feb. 15, December corn was trading at $5.98. I bought downside protection with $5.70 puts for just under 34 cents on 70% of my anticipated production.
What does that mean?
If the price of December corn on Nov. 24 is below $5.70 then my choices are:
- 1 — Let the options execute and sell December futures at $5.70. After the cost of the puts, it would be like selling for $5.36.
- 2 — if the price is between $5.36 and $5.70, I can sell the puts back and get some of the money I spent, but have no sales made.
- 3 — If the price is below $5.36, then I can sell the puts back and walk away with a profit on the trade, but have no sales made.
If the price of December corn on Nov. 24 is above $5.70, the puts expire worthless, but I would have no additional corn sold.
Basically, this trade provides unlimited upside potential on 70% of my crop, less the 34-cent cost to buy the protection.
Why did you make this trade in February?
There were similarities to both the 2012 and 2013 crop years.
When comparing 2012 vs 2013, weather was the key factor in the price direction variance. Since I can’t predict the weather six months in advance, I wanted to protect against the downside potential (i.e., 2013) while allowing for as much upside potential as possible (i.e., 2012).
December corn traded lower until Nov. 24. I let the options execute and sold $5.70 December futures. With the 34-cent cost of the puts and commissions, I sold 70% of my corn at $5.36.
When I combine the previous 30% sales, I have an average sold value of $5.37 futures against the December contract. The dotted yellow line in the chart below shows my average position compared to 2023 futures prices of the solid yellow line.
2023 followed both the 2012 and 2013 crop years and the outcome was not certain until August.
The weather and yields throughout 2023 were largely unexpected, so I am happy with the decision to buy puts in February. It provided unlimited upside potential on most of my 2023 corn throughout the marketing year and allowed me to keep a floor price that has been unavailable since late July.
Next week I will share the additional profits I made through my 2023 corn call options strategies and the final value I made on my crop.
If you like to learn more about how you could use this kind of grain marketing strategy for your farm, reach out to me at firstname.lastname@example.org.
Please email email@example.com 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.
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