844.845.6688 info@crmg.us

In Like a Lion, Out Like a Lamb?

Published on Monday, March 4, 2019

February weather was been relentless.  In many areas across the upper United States, February 2019 will be etched in the record books in regards to both low temperatures and snowfall amounts.  Simply put, I am over winter and I don't believe I am alone in that statement.       

The markets did little to help sooth our cold and weary souls.  For most of the month, prices in corn, soybeans, and wheat were all frozen in a tight range.  This gave us little by way of opportunities.  While we were all hoping for movement in the markets, the direction of the move was not what we had in mind.  Wheat was the first brick to fall, with corn and beans following suit.

The grain markets did not enter March in a friendly fashion.  May corn traded within 3 cents of it's lifetime contract lows before recovering 10 cents to close at 3.73.  May soybeans posted a new contract low for the 2019 trading year.  Perhaps the ugliest of all was the wheat market.  I wrote two weeks ago about the risk that existed in the wheat market, and time has done little to change that, with fresh contract lows being posted on the first day of the new month.        

While the close of the first trading day of March was promising, it reminds us of the significant price risk left in this market.  It is easy to get lulled to sleep in a market that seems to eternally trade back and forth in a very narrow range.  

There has been a shortage of chatter around the markets in regards to trade with China, acres, and weather.  That will likely not change, until either an agreement is reached or the crop is harvested.  While all of these are very relevant discussions, one should not get lost in the noise and forget to tend to the opportunities and risk it could create.  

It comes as no secret that we typically get the best look at prices for corn between April and July, that is when our crop is at greatest risk.  After pollination in July, we typically have a pretty good idea as to what yields will be.  As you look at the chart below there are a few things worthy of note.  The first and most obvious are the opportunities that we get to sell $4 or better futures once it becomes old crop and is tucked safely in the bin.  Secondarily, you will notice that these opportunities come and go very quickly.    

I take great pleasure talking to farmers all across the country.  Most would love to sell old crop corn for over $4.  The reality of this should beg the following questions:

Should corn rally beyond the $4 mark, what does it have to achieve, from a futures prospective, to offset a historical basis level in your area?

Do you have orders in with your local buyer to sell corn should we realize your goals?

Many opportunities come and go without being taken advantage of because you simply cannot watch the market all of the time.  Employ an offer to do this.  Last and most importantly, when we do realize your sales goals, will you have the conviction to pull the trigger or will you hold on trying to squeeze a few more pennies out of the market that never comes? 

Do you get worried that it may keep moving higher?  Or suffer from the all familiar backyard syndrome; " you know my crops just don't look great right now".  Whatever it is that holds you back from making that sale, either old crop or new crop, I offer a solution - call options.  While many a call has expired with no value the last 4 years, they have made a number of our clients a lot of money.  Investing a small amount of money in a call option during a downturn in the market, such as we are in, allows you to make those sales at realistic levels.  Knowing that should it continue to rally, you will be able to capture a portion of that.   

Today a July $4.00 call will cost you around 10 cents to cover your old crop sales.  A December 2019 call at a $4.50 strike can be purchased for just a penny or two more.  While March came in like a lion, let us hope that it goes out like a lamb.  Downturns in the market can also provide an opportunity.  Give us a call to help sort through a strategy that allows you to market with confidence.